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Russian Oil Production, Exports Fall
The Export Land Model got another piece of strong evidence recently from a report by Bloomberg that Russian oil production dropped .4% in September (boy, that’s quick - seems likely to be revised) but exports dropped 10%! If true, it almost sounds as though Russia is building some above ground strategic storage capacity. On the other hand, it also must reflect the arithmetic truth that an oil exporting country with a growing economy will export less oil each month than its production would otherwise suggest, since they are using more internally. Duh!
Russian Oil Output Falls for Ninth Straight Month (Update1)
By Greg Walters
Oct. 2 (Bloomberg) — Russia’s oil production fell for the ninth straight month in September as producers struggled with rising costs and maturing fields, bringing the world’s second- biggest crude exporter closer to its first annual drop in output since 1998.
Production fell 0.4 percent to 9.83 million barrels of crude a day (40.2 million metric tons a month) compared with a year earlier, according to figures released by the Energy Ministry’s CDU-TEK unit.
Output in Russia’s oil heartland of western Siberia is flagging as older fields mature and companies invest in harder- to-reach regions to tap deposits. In July, parliament approved tax breaks championed by Prime Minister Vladimir Putin to spur investment in national production.
“Right now the tax regime favors only highly-productive wells,” said Chirvani Abdoullaev, an oil and gas analyst at Alfa Bank in Moscow. “Will the tax changes really incentivize companies to drill less-prolific wells? I’m not sure.”
Total exports fell 10 percent year-on-year to 5.14 million barrels a day. Exports via OAO Transneft, the country’s crude oil pipeline operator, slid 9.1 percent to 4.13 million barrels a day from last year.
Russia’s sliding crude export duty, which rises when oil prices are higher, leaves less money to develop harder-to-reach deposits. Putin said in May taxes took as much as 80 percent of profits.
The world’s largest crude supplier is Saudi Arabia.
To contact the reporter on this story: Greg Walters in Moscow gwalters1 [Email address: gwalters1 #AT# bloomberg.net - replace #AT# with @ ]
Last Updated: October 2, 2008 05:12 EDT
Tags: peak oil energy investments
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11 responses so far ↓
1 paultaut // Oct 4, 2008 at 9:58 pm
Putin will have to buy the services of companies like Haliburton on an upfront basis or payment in full for each stage as various stages are completed. Not a single Western Oil company trusts Russia’s commitment to Contracts. Essentially, it will have to be a “pay as you go” type of arrangement. Oil companies have realized the futility of dealing with Chavez. Putin is in the same camp now. There is nothing he can say that will make oil companies believe he is acting in good faith.
2 jkingsdale // Oct 5, 2008 at 8:42 am
I agree completely. SLB and HAL will benefit and be great stocks when the market gets out of panic mode.
3 Paul // Oct 5, 2008 at 1:22 pm
It is not a universally shared view that Russia’s commitment to contracts cannot be trusted.
As far as I know, Russia has never, not even at the height of the cold war, broken a contract on gas or oil delivery to those European countries who paid the bill.
(Ex Soviet Union countries with way below market price sweetheart deals had a decade of advance warning that they would eventually have to pay market prices. When they refused, Russia reduced delivery, but still delivered enough such that no real emergency happened).
Like any other country they tried to renegotiate deals with foreign oil companies when the basics changed dramatically (i.e. oil went from $10 to $100). But they always kind of negotiated.
It was pointed out some time ago on this very website that the UK didn’t negotiate, they just “broke their contracts “with regard to north-sea oil by increasing taxes without any consultation.
(I’m not at all saying that that Russia is a democratic, benevolent country with high legal standards, but it’s also not black and white. I would also not put Putin and Chavez in the same camp; doesn’t one seem quite a bit more rational than the other ?)
4 paultaut // Oct 5, 2008 at 9:18 pm
No, No and No.
The latest incursion into the private sector by Putin was the nationalization of the agricultural industry because “they were price Gauging”. When negotiation translates into imprisonment, negotiations always go Putin’s way.
EVERY major Russian find by anyone has somehow managed to infringe on some aspect of Russian Law. The entity having spent the time and money is left with nothing other than Back Taxes owed or, maybe environmental bills owed, or maybe etc.
Russian allies: Iran, Cuba, Venezuela.
I don’t judge Russia by what they say, but what they do.
5 Alexei K. // Oct 6, 2008 at 12:07 am
Schlumberger has been quite successful in Russia. See for instance their 2Q 08 release: http://phx.corporate-ir.net/phoenix.zhtml?c=97513&p=irol-newsArticle&ID=1176513&highlight=
That crude exports fell 10% y-o-y in Sept. 08 does not mean total oil exports (that is, including oil products) fell. Statistics on oil product exports is not as readily available as on crude exports. Refinery throughput was up 4.1% y-o-y though. Recall that Russia’s tax system favors refiners by giving them an effective margin of some USD 20/bbl. At the same time, the economics of crude exports got rather poor towards the end of September. The net result was probably an increase in product exports especially diesel (”Russian gas oil” to be precise), of the same order as the drop in crude exports.
6 jkingsdale // Oct 6, 2008 at 6:45 am
Thanks, Alexi. That makes more sense.
7 paultaut // Oct 6, 2008 at 7:39 am
Doesn’t Russia also subsidize consumer usage of refined products by about 40%?
Yes, SLB, please note my first comment. HAL was also mentioned. Russia badly needs the Expertise these companies provide and will not, so to speak, “screw the Pooch” in their regard.
They provide oilfield services and aren’t competitors, yet.
8 paultaut // Oct 6, 2008 at 7:52 am
PS During the Cold War, Russia needed whatever capital they could get from wherever they could get it which included tons of Gold sales. One Five Year Plan after another Failed, the people wanted Bread, they received Vodka. Even the attempt at invoking National pride with the Invasion of Afghanistan failed to divert their populace. (their Vietnam). Reagan’s Military Spending finally proved to be their undoing. Russia during the Cold War vs Russia now, are 2 entirely different animals. During the Cold War, Oil was not a weapon.
9 Alexei K. // Oct 7, 2008 at 5:18 am
Russia charges export duties on oil products but it also charges excise taxes on gasoline and diesel sales within the country. For 92-octane gasoline, the net effect of an export duty (subsidy) and excise tax is about USD 120 per tonne now. Gasoline is traded at some USD 760-790 per tonne in EU. Therefore gasoline subsidy is about 15% of wholesale EU prices. At the pump, Russian official statistics put the 95 gas price at about USD 3.50 per gallon in the week of 22-28 Sept. Not that much different from the US.
10 paultaut // Oct 7, 2008 at 9:38 pm
No wonder, I saw an article about people protesting the high costs. It seemed strange at the time since I thought the subsidy was much greater.
11 Ty // Nov 21, 2008 at 5:31 am
Paul, you’re wrong. In winter 2006, Gazprom, which is a monopoly, halted nat gas supplies to Ukraine and accused them of stealing (same way they accused Georgia of undermining them before invading). It was nothing more than extortion, a way to force the Ukraine to pay them more
You cannot trust Putin or Russia, they are ruthless
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