Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Oganesyan Warns of Slowdown

Itar-TassFederal Energy Agency head Sergei Oganesyan
Russia, the world's second-largest crude exporter, must revive investment in its oil and gas fields or risk a further slowdown in a five-year oil boom, the head of the nation's energy agency said.

The lack of investment in oil fields, part of the "barbarous treatment" of the country's resources, must be reversed, Federal Energy Agency head Sergei Oganesyan said Wednesday.

Output growth will drop by almost half to 5 percent this year and probably slow further in 2006 and beyond, he said. Drilling fell last year as Russia demanded $28 billion in back taxes from Yukos.

Russia's oil boom may be ending as President Vladimir Putin increases government control over the industry, hurting investment in new wells, rigs and pipelines. A slowdown in Russian oil production gives greater power to OPEC as world demand rises. The group pumps about 40 percent of the world's oil.

The Paris-based International Energy Agency estimates Russian oil output will rise 3.8 percent this year, less than half the average during the past five years and the lowest since $10 oil hurt investment in 1999. Oil output rose 9 percent in 2004 to 9.2 million barrels per day.

"It's possible, though it's too early to tell [whether growth will slow to 3.8 percent this year]," Oganesyan said.

His comments came as the Industry and Energy Ministry said it expected oil output to rise by 250,000 barrels per day in the second quarter of 2005 to a new post-Soviet high of 9.58 million bpd.

The forecast was contained in a decree on the nation's quarterly energy balance signed by Industry and Energy Minister Viktor Khristenko. The ministry's estimate represents only a guideline and has repeatedly been overly optimistic in the past few quarters.

The ministry said crude exports via the Transneft pipeline network, including deliveries to ex-Soviet states, would amount to around 5 million bpd, or in line with the current levels.

Oil output rose to 9.33 million bpd in February after a four-month decline which many analysts attributed to the state-driven breakup of oil major Yukos.

Seasonal factors also played a role in the recent dip, but production growth is also expected to slow this year. Transport bottlenecks are making it harder to bring oil to export markets.

Clogged pipelines, which are boosting transport costs, have also discouraged companies from investing in production.

LUKoil forecasts shipping costs of $3 billion this year, up 20 percent from 2004, and TNK-BP's transportation costs rose 77 percent to $1.5 billion in 2003, according to the most recent figures available.

A tax increase last year means the government takes most of the gains as crude trades above $50 per barrel.

"With the new tax laws put in place last year, effectively 90 percent of the cash flow above $25 goes to the government, so we are not actually enjoying the benefits of these high oil prices," TNK-BP Chief Executive Robert Dudley said in January.

(Bloomberg, Reuters)