RUSSIAN OIL PRODUCTION SLIDE TO CONTINUE IN 1994-95

Russia's crude oil production slide is expected to continue in 1994, while its natural gas flow will turn around next year from a recent slump.

That was the key finding of a draft report by Russia's Association for the Fuel and Energy Complex (Asofec) to a plenary meeting of the former Soviet republics' Intergovernmental Council on Oil and Gas last month.

Other delegates at the meeting called for cuts in taxes and duties they said were hindering bilateral relations, although such prospects are dim in light of most republics' economies remaining in shambles.

Several delegates noted problems between Russia and other former Soviet republics over nonpayment of debts for petroleum supplies. Russia in recent months has cut off supplies to a number of other C.l.S. members for lack of payment of petroleum debts.

The council was established last March by Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, and Uzbekistan. Also attending as observers were Hungary, Slovakia, and the Czech Republic.

PRODUCTION WOES

Asofec Pres. Nikolai Pravednikov said his association predicts Russian crude production in 1994 will average 6.54 million b/d, down from a forecast 6.8-7 million b/d this year.

That compares with peak of 11.4 million b/d in 1988.

Natural gas flow is expected to increase by 350-384 bcf in 1994 to 22.75-23.1 tcf. Natural gas production, previously a bright spot in Russia's energy production picture, has slipped this year (OGJ, Sept. 20, p. 40).

At the same time, Russian production of refined products is expected to slip to 4.5 million b/d, down from 5.09 million b/d expected this year. Pravednikov said refined products supplies will cover Russian demand but will not be sufficient to cover other former Soviet republics' demand.

Some delegates at the meeting called Asofec's predictions too optimistic.

Pravednikov pointed out that while Russia's oil production decline can't be stopped during the next 2 years, it could be slowed significantly through cooperation and investment by all former Soviet states in Russia's crumbling petroleum infrastructure.

Delegates to the meeting sought to establish improved relations among council members.

Asofec called on oil and gas enterprises of the council nations to form more joint ventures among its members.

It said a preferred approach would entail service contracts, thereby allowing direct agreements without a preliminary tender process and possible conflicts with Russian law.

Asofec also called for coordinated legislation governing development of natural resources, taxes, and accounting procedures.

MOUNTING DEBTS

Most delegates from other former Soviet republics cited an urgent need to catch up with payment of debt to Russia for hydrocarbon supplies.

C.I.S. states owe Russia more than $10 billion for oil and gas supplies, equal to 53% of the payment for 1 year's deliveries, said Vladimir Sheherbakov, director of Asofec's coordinating council.

Belarus noted at the meeting it recently paid 60% of its liabilities for Russian petroleum purchases. In late August, Belarus' take of Russian gas supplies was slashed to 423.6 MMcfd from the typical 1.094 bcfd because of nonpayment for the gas, according to Mikhail Korchemkin, with the University of Pennsylvania's Center for Energy and the Environment. After the partial payment, Russia boosted Belarus' gas supplies to 600.1 MMcfd.

Similarly, Estonia's imports of Russian natural gas fell to about 52 MMcfd in first half 1993 from about 119 MMcfd during the same period in 1992. Estonia stepped up payments and now is paving about $2.27/Mcf.

V.V. Remizov, vice-president of Russian gas enterprise Gazprom, noted Belarus' payment of $30 million helped stave off a threatened strike by western Siberian gas workers. However, he noted, one concern still owes $100 million to the Yamalo-Nenets autonomous region alone.

UKRAINE'S SITUATION

Ukraine, with a fuel debt to Russia of $1 billion and mounting, said it will cover all its liabilities. However, the C.I.S. republic in August paid only $26 million instead of $65 million as promised.

In late August, Russia cut gas shipments to Ukraine by 25%. Ukraine had been receiving about 4.2 bcfd. By remaining in arrears, Ukraine faces the threat of a further 25% cut if the bills aren't paid.

"This will be another good test for reliability of Ukraine as a transit ground," Korchemkin said.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.