OPEC Courts Russia Ahead of Cuts

ReutersPresident Dmitry Medvedev and Deputy Prime Minister Igor Sechin meeting with OPEC chief Abdullah al-Badri at the president's Gorky residence Wednesday.
Russia and OPEC held their highest-level talks ever on Wednesday, with President Dmitry Medvedev meeting Secretary-General Abdallah Salem al-Badri to discuss the volatile oil market amid a Kremlin push for broader cooperation with foreign energy producers.

Neither the Kremlin nor the Organization of the Petroleum Exporting Countries released details of the meeting, but in comments before the talks, al-Badri sought to dispel the notion that he came to Moscow to ask for an output reduction.

The meeting came on the heels of an agreement among Russia, Qatar and Iran — which together hold 60 percent of the world's gas reserves — to consult one another on the gas market and possibly pursue joint projects.

Deputy Prime Minister Igor Sechin said Russia was not going to cut its crude output, but he reiterated plans to set aside several oil fields as backup capacity to influence world prices. He also said the government was studying the idea of further reducing oil export duties.

Al-Badri and Medvedev met two days before OPEC is expected to agree on an output cut to prop up falling prices, which are in danger of making production and investment unprofitable. Russia's state and private oil producers alike need to invest heavily to replace output from depleting fields.

"Interaction with OPEC is one of the key areas for our energy agencies and for the building of our energy policy in general," Medvedev said before the meeting at his Gorky retreat outside Moscow.

Russia enjoys good relations with OPEC and its members, and it intends to develop the contacts because it is interested in stable oil prices, Medvedev said.

Prior to the meeting, al-Badri spoke at an industry conference in Moscow where he warned that low oil prices would "without any doubt result in the cancellation of many upstream and downstream projects, and this will lead to future long-term supply problems."

On the other hand, there is a risk of a future downturn in demand as the global economy is slipping into a time of slower growth, al-Badri said. "For producers, there is a real prospect of wasting precious resources on capacity that may not be needed," he said, according to a transcript of his speech on the OPEC web site.

Russia began moving closer to OPEC in September, when Deputy Prime Minister Igor Sechin led a delegation to the group's meeting in Vienna.

Al-Badri and a group of OPEC officials will hold a joint workshop with Russian officials Thursday to discuss oil market developments and outlook, multilateral issues and prospects for cooperation.

European Union energy spokesman Ferran Tarradellas Espuny said the European Commission, the group's executive body, had no comment on the contacts Russia is holding with any organization.

"The commission expects that Russia will provide information of any activity that can affect our relations with Russia in the field of energy through the usual channels," he said by e-mail.

Commenting on the creation of the "gas troika," Espuny said Europe was not opposed to energy suppliers cooperating more on research but that if they form a cartel the European Commission might review its energy policy, The Associated Press reported.

OPEC is to hold an extraordinary session Friday to review output, with some member countries calling for cuts of up to 2.5 million barrels per day, or 8.7 percent, although a cut of closer to 1 million bpd is expected.

The International Energy Agency's executive director, Nobuo Tanaka, said at the same industry conference that OPEC should maintain production to allow global stockpiles to grow as a cushion against possible supply disruptions.

At OPEC's last meeting, in September, the group's members cut output by about 500,000 bpd.

Russia is already contributing to reduced global production because its output has been declining this year for the first time in a decade, said William Ramsay, former deputy executive director of the International Energy Agency.

"I would think that this contribution is enough," he said by telephone from Paris, where he is director of the energy geopolitics program at the French Institute of International Relations think tank.

Also, the Kremlin cannot push private oil producers to cut output, he added.

"I wouldn't impute great things to a meeting between those people," Ramsay said, referring to Medvedev and al-Badri.