Yukos fights for survival in Russian, world oil markets
Sam Fletcher
OGJ Online
HOUSTON, Feb. 11 -- OAO Yukos is battling now for a bigger share of the oil market at home in a bid to be among the "one or two" surviving Russian-based major oil companies "within 5-10 years," CEO Mikhail Khodorkovsky said Monday.
The Russian government agreed in December to curb international oil exports by 150,000 b/d effective Jan. 1 in face of a threatened price war by members of the Organization of Petroleum Exporting Countries that could have wrecked Russia's economy. Khodorkovsky told OGJ Online that he took that threat "100% seriously, because the Saudi Arabian government can last a long time (at low price levels for oil) if the US provides it with loans as it did in 1998."
Speaking through a translator, Khodorkovsky said, "The government is very afraid (of an oil price war with OPEC), but apparently the prime minister recently told President Bush that Russia will not get in line with OPEC."
Although the state controls the export pipeline for Russian oil, Yukos and other companies are increasing production in the field, putting additional pressure on the domestic market where oil prices are already at a record low of $30/ton or $5/bbl, down from $50/ton last year, "not counting transportation costs," said Khodorkovsky.
"We're waiting to see who says 'uncle' first. Either the government will open up exports or some Russian companies will start dying," he said. "The Russian government is aware that, if the oil companies experience economic collapse, the government is not going to survive that.
"So it's either revolution in Saudi Arabia or revolution in Russia," Khodorkovsky quipped.
If the world market for oil dropped to $10/bbl, Russia could still sell into the European and Chinese markets, in addition to its home market, said Khodorkovksy. A price collapse to $5/bbl "would be heavy," he acknowledged. But even at that level, no OPEC member could crack the Russian home market, he claimed.
Khodorkovksy sees Russia's total oil production increasing by 3 million b/d within the decade, with an additional 2 million-2.5 million b/d from the Caspian region within the same period. With that additional oil seeking a market, he said, "We'll butt heads in Europe and with OPEC, too."
Although it couldn't surpass OPEC, Russia would like to be viewed by the US and other consumers as a secure alternative supplier. But only "if the US doesn't change its mind in mid-stream and say, 'We'll take Saudi Arabia at $10/bbl," said Khodorkovksy. "In that case, there would be only Saudi Arabia 3 years down the road."
As part of its attempt to increase its share of the domestic market, Yukos is trying to improve its refining processes through minimum investment, first by upgrading catalytic systems. The company has sufficient oil reserves to increase its production to 20%-30% of total Russian output. But any move to corner 30% of Russia's domestic market would trigger some "nasty" anti-monopoly legislation, Khodorkovsky said.
In the long run, Yukos' brightest domestic opportunity is as a natural gas producer, once the Russian gas market is "liberalized." Khodorkovsky expects to get a large portion of that emerging market.
"(OAO) Gazprom is not a monopoly except for its pipeline. It has high production costs," he said. "We can do better. We don't have the baggage of old mistakes, like Gazprom."
Khodorkovsky wants to produce 15 billion cu m of gas "or maybe more," by 2005, for markets at home and in Europe. "Right now, we're just looking at production, but if you talk of LNG or gas-to-liquids, then we have to talk about transportation as well," he said.
Contact Sam Fletcher at [email protected]