Streetwise Professor

October 20, 2009

Better Late Than Never

Filed under: Commodities,Energy,Financial crisis,Politics,Russia — The Professor @ 4:42 pm

Old hat to SWP readers (I wrote about this repeatedly from last December through March), but apparently “news” to the NYT:

While OPEC members limped through a period of painful production cuts this year, Russian oil companies enjoyed an extraordinary run.

The year that has gone by since Russian officials floated — and then retracted — a proposal to coordinate production limits with the Organization of the Petroleum Exporting Countries illustrates why the Kremlin is unlikely ever to actually do so.

Already the world’s largest oil producing nation, Russia, pumping prodigiously through the downturn, this summer passed another milestone. As Saudi Arabia tightened its belt to live by OPEC cuts, Russia surpassed it to become the world’s largest exporter.

. . . .

Improbably, the once-neglected oil sector has emerged as one of Russia’s few growth industries, helped by the tax cuts, a devaluation of the ruble that aided exporters and a change of policies that may invite foreign companies back into the sector.

“OPEC made a concerted effort to stem its exports,” said Alex Fak, an oil analyst at Troika investment bank in Moscow. “The result of that action was higher oil prices. So Russia was encouraged to produce more and sell more. Which is what it did.”

Yet, for a time, officials had seemed ready to revise the long-held axiom that Russian national interests were not served by cooperating with OPEC. Sharp price declines had turned Russian oil companies, just a few months earlier seen as money printing presses for the government, into money losers. Far from propping up the Russia government, which relies on oil exports for about 40 percent of its budget, they needed help themselves.

Anyone who really believes that Russian officials were ready to cooperate with OPEC is incredibly credulous.  The Russians are notorious for playing double games, and for double crossing.  I just wonder if OPEC was as credulous as the New York Times.

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4 Comments »

  1. Hmm…now that there is a good chance that Pakistan could plunge into a civil war, there is more uncertainty on Russia’s southern border. Such uncertainty usually tends to increase the oil price…

    Comment by Surya — October 20, 2009 @ 9:41 pm

  2. Over the past few months here are some headlines I can recall involving Russia and an OPEC nation:

    – Saudi Arabia to make major Russian arms purchase, threatening exclusive market of Western defense firms
    – Libya to make major Russian arms purchase
    – Venezuelan-Russian JV to invest $25b in Orinoco field
    – Nigeria-Russian JV to develop gas fields and build gas pipeline to Europe
    – Gulf nations, Russia, France, China, and Japan among states secretly meeting to replace dollar

    SWP, maybe you can begin to fathom that geopolitics is often more than meets the eye. Russia and OPEC know what they are doing.

    Comment by lisa — October 20, 2009 @ 10:36 pm

  3. Last week we also got word that Norway’s oil production will decrease 15% in 2010: http://www.reuters.com/article/rbssIntegratedOilGas/idUSLD5309720091013

    Oil production next year and for the foreseeable future is going to be ABYSMAL (irreversible decline !!!). I don’t know how much increased gas production could help offset the difference. No matter what, Russia has a lot of cards to play and they’re all aces.

    Comment by lisa — October 20, 2009 @ 10:49 pm

  4. Russia has a lot of cards to play and they’re all aces.

    It is again winter, when energy use is at its peak and the Putin-mafia do not want to play chess ?

    Russian aircraft carrier sabotage Norwegian oil platforms

    Natural gas production, on the other hand, has been steadily increasing since 1993,
    reaching 3.5 trillion cubic feet (Tcf) in 2008 .

    Despite the maturation of its major natural gas fields in the North Sea, Norway has been able to
    sustain annual increases in total natural gas production by incorporating new fields in the
    Norwegian and Barents Seas.

    http://www.eia.doe.gov/emeu/cabs/Norway/pdf.pdf

    Norway’s single largest natural gas field is Troll, which producer 2.88 Bcf per day (Bcf/d) in 2008 and represents about one-third of Norway’s total natural gas production. Other important fields include Ormen Lange (1.11Bcf/d), Sleipner Ost (1.10 Bcf/d),Asgard (1.10 Bcf/d), and Oseberg (0.54 Bcf/d). These four fields compose over 70 percent of Norway’s total natural gas production.

    http://mm.aftenbladet.no/multimedia/dynamic/00258/Kuznetsov_258699b.jpg

    Several aircrafts and helicopters are in the air around the aircraft carrier “Admiral Kuznetsov”, which is located near the “Troll” platform. The military flying has made StatoilHydro halt helicopter traffic to and from the plattform

    There may be, as is often the case when dealing with the Russians, more to the events than meets the eye. Norway experienced its second-worst oil spill ever on Dec. 11 at the Statfjord oil field — which the Kuznetsov passed on its way to Gullfaks. The official response is that the cause of the spill is unknown and under investigation. Still, in all probability, that accident wasn’t a coincidence. Shutting down both the Gullfaks and Statfjord fields simultaneously, even for a short time, has substantial economic implications for Norway.

    Why such tactics from the Russians?

    The deployment of the Kuznetsov isn’t mere “muscle-flexing,” as uninformed critics lazily label any Russian military activity since the end of the Cold War. It is part of a carefully calculated strategy of peripheral destabilization and the incremental return of Russian global power — at Europe’s expense. The Russian chess masters are now far beyond throwing away pawns during the opening moves in a game the West is so far refusing to play. As one experienced Russia analyst notes, “They’ve now moved a rook. Start to worry about what the endgame is going to look like.”

    Comment by Oleg — October 22, 2009 @ 12:45 pm

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