Russian roundup

U.S. President Bill Clinton and Russian President Boris Yeltsin have agreed that several pipelines will be needed to bring Caspian oil production to western markets. After a 2-day summit with Yeltsin, Clinton said, "Multiple pipeline routes are essential to bring energy from the Caspian region to international markets and to advance our common security and commercial interests."

Sept. 14, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

U.S. President Bill Clinton and Russian President Boris Yeltsin have agreed that several pipelines will be needed to bring Caspian oil production to western markets.

After a 2-day summit with Yeltsin, Clinton said, "Multiple pipeline routes are essential to bring energy from the Caspian region to international markets and to advance our common security and commercial interests."

Russia has insisted most of the Caspian oil should be shipped through its territory to the Black Sea port of Novorossiisk. The U.S., Azerbaijan, and Turkey want a pipeline bypassing Russia, stretching from Baku in Azerbaijan through Georgia to the Turkish Mediterranean port of Ceyhan.

The agreement may be symbolic, since both lines may not be built, and the Russian project has the head start.

The Caspian Pipeline Consortium recently approved costs of $2.236 billion for a line from Kazakhstan's Tengiz oil field to Novorossiisk.

The 982-mile, 1.3 million b/d line would be in full operation by late October 2001. Construction of a terminal in Novorossiisk will start next year.

Foreign investment

Also at the summit, Clinton, Commerce Sec. William Daley, and Energy Sec. Bill Richardson urged Russian leaders to push legislation to encourage foreign investment in their energy industry.

Daley said Russia's investment and production-sharing laws are keeping foreign companies from making about $60 billion in investments that would bolster the Russian economy. He told the U.S.-Russia Business Council: "These companies will hire people and buy equipment, if these projects could go forward."

But Mikhail Korchemkin, of East European Gas Analysis, Malvern, Pa., said the crumbling of the Russian government and the devaluation of the ruble have given the Duma more important things to worry about.

Korchemkin said the Russian government would be very wary of making additional investment reforms at this time.

"No politician in Russia can stay on top today if he promises reform. The Russian people are fed up with reforms."

Tax issues

Nevertheless, Russia's Energy Ministry has proposed to slash the oil excise tax from 55 rubles/metric ton to 25 rubles/ton for the rest of the year and then levy a supplementary oil profits tax next year.

The Duma passed a bill last summer to cut the tax to 25 rubles to lessen producers' losses from falling world oil prices, but Yeltsin vetoed it in July.

Oil exports are a source of hard currency for producers, and the ministry estimates falling oil prices have cost them $9.2 billion this year.

Energy Minister Sergei Generalov said, "Russian oil producers suffered big losses and have to cut production now due to a lack of investment. We expect the country's oil output to fall by 10-12 million tons by the end of this year, and a ruble devaluation doesn't help companies much."

Russia produced 305 million tons of oil in 1997 and will deliver about 295 million tons this year. Generalov said the tax changes would allow companies to produce 275 million tons next year, rather than slipping to 221 million tons under current tax rates.