Oil production in the Commonwealth of Independent States may dip to 7.7 million b/d next year.
Robert Ebel of the Center for Strategic and International Studies, Washington, D.C., made that prediction before a meeting of the National Association of Petroleum Investment Analysts. Oil & Gas Journal's latest worldwide oil production figures peg the C.I.S. volume at 8.689 million b/d last August (see p. 50).
Ebel said a September decree will allow oil prices to move in line with the market and with costs of production. That in turn will lead to development of a deregulated domestic oil market.
"The producer can sell his oil for any price," Ebel said, "but if the price exceeds 4,000 rubles/ton, a tax comes in, which in effect will set a profit limit equal to 50% of oil producer costs.
"It will be painful for some high cost producers, who may find themselves priced out of the market. In addition, the decree apparently introduced a 18% excise tax on oil to be paid by producers.
"Russian authorities seem to be resigned to a loss in production this year of some 14%, bringing output down to under 8 million b/d, a drop of around 1.3 million b/d, compared with 1991. To that, we can add production in the other republics, probably a bit less than 1.1 million b/d."
Ebel said although those numbers are averages for the year, by next December oil production in the C.I.S. might fall to as low as 8.4 million b/d, with production in Russia totaling no more than 7.3 million b/d.
TROUBLE AHEAD
Ebel said, "These estimates spell trouble for Russia's ability to earn hard currency through oil exports and in turn put its creditworthiness in doubt. They spell trouble for the other C.I.S. republics and for eastern Europe, whose contracted oil deliveries from Russia could be in jeopardy. And they spell trouble for domestic consumers in general."
He said gross exports of C.I.S. oil will be 1.5-1.6 million b/d this year.
Ebel said 1993 will largely mirror 1992, with production dropping another 1.3 million b/d to about 6.7 million b/d in Russia and the other republics adding about 1 million b/d.
"This will make for a loss of almost 5 million b/d in oil production in a relatively short 5 years. I can think of no other producer who has undergone such a transformation when the circumstances have not been dictated by war or the workings of the marketplace but rather as a result of mismanagement of a superior natural resource, now made more dramatic by the political changes surrounding this transformation."
He estimated oil exports would be about 900,000 b/d next year, plus some 300,000 b/d of products, leaving 4 million b/d of products for domestic consumers. The country is very apt to experience shortages of gasoline and diesel fuel.
He said by December 1993 Russian oil supply might be down as low as 6 million b/d.
"It will be crunch time for the other C.I.S. republics and eastern Europe. Even if they are willing to pay in hard currency or barter with something Russia needs, the oil just might not be there in the amounts required."
PLAN FOR RECOVERY
"Russian authorities have laid out a very general three stage plan for getting the oil industry on track. The first stage involves restoration of all those idle oil wells, currently about 20,000 in number. Yet even if all the above norm idle wells were returned to production, they likely would contribute not much more than 700,000 b/d-enough to cut the current annual production decline in half but not much more.
The second stage involves developing fields that have been explored but where production is minimal, and the third provides for exploration and development of new fields.
"For the shorter term, joint ventures will help bring the idle wells back in production with the foreign partner taking profits out in the form of crude oil, although the Russian side would much prefer to borrow funds, buy the required equipment, and restore the wells itself.
"Joint ventures related to the restoration of idle wells might soon come to an end or at least diminish if financing from the European Bank for Reconstruction and Development (EBRD) and the Export import Bank comes through as planned. The EBRD is considering the possibility of providing about $1.5 billion in credits to be used to purchase equipment needed to get idle wells back into production."
Ebel said a draft plan submitted to Russian President Yeltsin last May anticipated that at best the decline in Russian oil production will continue to 1995, by which time annual production will have fallen to 6.5 million b/d. Production would then begin to rise slowly, reaching 7.4 million b/d by 2000.
"The draft went on to warn that if drastic measures were not taken, annual production might collapse by 1995 to 4.6 million b/d, low enough to threaten demand requirements."
Ebel predicted, "Production by 1995 and later will be less than under the 'at best' conditions simply because some of the required conditions will not be in place soon enough."
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