Posted on 06/03/2002 8:24:08 AM PDT by bloggerjohn
When Russia said last month it will defy OPEC and end cuts on oil exports, few were surprised. The only question was whether there were any export cuts to end.
Last fall, Russia agreed to shave 150,000 barrels a day from its exports this year. Yet in the first four months, production rose 8.8% over the prior year to almost 7.3 million barrels a day.
Granted, the original deal was murky, says Philip Verleger, an independent energy analyst. The cut was based on what output would have been without a deal, which is hard to pin down. Even so, the Organization of Petroleum Exporting Countries was in for a shock.
"It was more than expected," said Verleger. "I don't know what OPEC thought they had."
Nothing, it seems, can stop the Russian oil boom. Over the last two years, output has risen by a million barrels a day. With investor money pouring in, analysts say it could rise another 20% in the next four years.
Why the glut now, when OPEC is trying to shore up prices? It boils down to a simple fact. Most OPEC members are state-run monopolies. Russia's newly privatized energy firms — Lukoil, Yukos, Surgut Oil & Gas, Tyumen — answer to no one but their owners.
On Their Own
"The oil companies (in Russia) can pretty much do what they want to do," said Mark Mobius, president of the Templeton Russia Fund. "Exports are somewhat regulated by the government, but even there, there's a lot of freedom."
Russian oil has come a long way since the Soviet Union fell 11 years ago. Amid the breakup, output plunged from 12 million barrels a day to half that in 1996.
It also took a while for business leaders to shake their old Soviet habits. Yukos, for instance, stiffed its Western lenders when the Russian economy collapsed in 1998. Lacking recourse in Russia's legal system, many of them left the country in disgust.
Since then, Russia's oligarchs have begun to realize it's in their self-interest to be reliable partners. Lukoil even hired an American accounting firm to audit its books. At the same time, a cheaper ruble and a spike in oil prices led investors back into Russia.
So vibrant has the Russian oil industry been that observers say it's taking on OPEC's 800-pound gorilla: Saudi Arabia.
In sheer quantity of oil, Russia lags behind the Middle East giant. Saudi Arabia has 25% of the world's proven reserves, while Russia has only 10%. And the Saudis will gladly use their 3 million barrels a day spare capacity to beat their rivals into submission.
The last such time was in 1998, when Saudi Arabia cratered the price of oil to smack down a defiant Venezuela.
Taking On The Saudis
Russia may be the only oil producer big enough to take on Riyadh. Despite smaller reserves, its output is nearly that of Saudi Arabia.
Also, there may be more unproven reserves in the "near abroad" where Russian firms operate, such as Kazakstan. And in contrast to Russia's dynamism, Saudi output has barely changed in 20 years.
It also helps that Russia has huge amounts of natural gas, mined by many of those same oil firms. This is crucial because gas is slowly displacing oil as an energy source in the West.
This points to another key fact about Russia. Unlike Saudi Arabia, Russia makes many products besides oil. If the price of oil goes up, the ruble also goes up, harming nonoil exports, says Verleger.
"Russia needs a price of about $15 to $20 per barrel to achieve optimum growth," he said.
Russia's historical beefs with the Saudis add fuel to the fire. As Edward Morse and James Richard explained in a recent Foreign Affairs article, Russian oil firms feel the Saudis owe them.
"The . . . Saudi-engineered price collapse of 1985-86 led to the implosion of the Soviet oil industry - which, in turn, hastened the Soviet Union's demise," they wrote. "From this perspective, Moscow's companies were simply reclaiming the international market share that had been stolen by Riyadh 15 years earlier."
According to Morse and Richard, Russians also resent the Saudis' support of Islamic rebels in Afghanistan, Central Asia and Chechnya. After Sept. 11, the U.S. can sympathize. Fifteen of the 19 hijackers that day were Saudi.
"I think because of (Russian President) Vladimir Putin's solidarity with the U.S. since Sept. 11, we'll see a transformation of the relationship between America and the Russians," said Mobius.
The new warmth hasn't just been on the state level. Late in 2000, Lukoil bought the operating company for the Getty gas-station chain. That made it the first Russian oil firm to enter this country on the retail side. Other Russian firms are looking for similar deals. Transneft is planning to build a pipeline across the Bering Strait into western North America.
Russia's No. 2 producer, Yukos, will send its first tankers to the U.S. this summer. They'll go to the East Coast or the Gulf of Mexico.
"The ultimate prize for the Russians is America," said Mobius. "The critical thing is to have Russians partner with American oil companies. I think that's going to be something you'll see more and more of."
The upshot of all this is that Russia could become the anti-OPEC. Already, analysts say, other non-OPEC countries are feeling bolder. Norway recently said it won't continue its export curbs past June 30.
In the end, this may be about more than where oil's coming from. Much like the Cold War, it's a clash of rival economic systems.
"This is a battle between an attempt to monopolize the market and those trying to create a more competitive market," said Verleger.
|
|
|
|
|
|
|
|
|
|
|
| U.S. Crude Oil Production |
|
|
|
|
|
|
|
|
|
| U.S. Petroleum Imports |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the almost 30 years since the Arab Oil Embargo, America's dependency on foreign oil has increased from 25% to over 65%. It makes no difference if it is OPEC or Russian oil, foreign dependency is still foreign dependency. Our national security will NOT be enhanced unless we increase utilization of DOMESTIC energy resources.
Or just use less energy.
Anything to make the price of oil low, so the Saudi's can eat it if they can't sell it for the high price. Maybe the radical rag-heads will start to turn on their own.
More dreaming...
AND use less energy.
Energy efficiency is good.
However, federal "standards" are asinine micro-management.
How do you get people to volunteer to quit using cheap gas anymore than you get the to volunteer to quit buying imported junk at Walmart? You can't. The gmt has to increase the price of energy to force efficiency and conservation.
Sure you can.
Offer them something even less expensive and more efficient:
Modern, electricly-powered mass-transportation systems fueled by clean-coal and NUCLEAR technology!!!
People won't opt not to take their cars to save money when gas is cheap. People love their cars. OK maybe .1 percent will in the big cities but there will be almost zero impact on the 21 Million barrels per day with that plan. No one is interested in saving energy when it is cheap.
Mass transportation succeeds in our densely populated urban areas because it is faster and more convenient to use. Gas could drop to 10¢ per gallon and people would still use urban mass-transit rather than fight traffic congestion and hunt for virtually non-existant parking spaces.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.