#8
Moscow Times
October 3, 2002
America Opens Its Oil Doors to Russia
By Bradley Cook
Staff Writer

In a symbolic gesture that Russia hopes portends the future, U.S. Energy Secretary Spencer Abraham guided Energy Minister Igor Yusufov through a key section of the heavily guarded U.S. emergency oil reserve network Tuesday. It was the first time a Russian official has been given such a tour.

"This is an unprecedented step, a step of trust the United States has in Russia," Yusufov said in Freeport, Texas, after touring the Bryand Mound site.

Yusufov and Abraham later joined other senior officials, oil executives and financiers at the first U.S.-Russia Energy Summit in nearby Houston.

The brainchild of Presidents Vladimir Putin and George W. Bush, the two-day summit in America's oil capital, which opened Tuesday, is designed to expedite energy cooperation between the two oil and gas giants.

For Russia, which gets half its revenues from oil and gas, the summit represents a united political push to increase its role as a dependable energy supplier to the world's biggest consumer. For that, however, Russia needs investment -- lots of it. Yusufov put the figure at $50 billion through 2010.

The summit is part of the Bush administration's geopolitical strategy of diversifying its energy suppliers while seeking support for its political objectives -- both of which intersect in the Middle East and the hydrocarbon-rich Caspian region, which Russia considers to be in its sphere of influence.

While few major deals were expected to be signed, several small but strategic ones have been announced that will benefit most of Russia's top oil companies.

The U.S. Export-Import Bank has signed a $100 million agreement with LUKoil, Yukos and Sibneft to provide medium- and long-term loans to buy U.S. equipment and services.

Abraham said that next week a strategic reserve site similar to the one he toured with Yusufov will take 280,000 barrels of Russian crude -- all of it from Tyumen Oil Co.

U.S. emergency reserves have never before held Russian oil.

"This further represents the things that are going on between our two countries," Abraham said.

Including shipments due to arrive in October, America has imported 18.4 million barrels of Russia crude this year -- up from zero last year, The Wall Street Journal reported.

With Bush planning to add 120 million barrels to the emergency reserve to top it off at 700 million barrels by 2005, Russian producers, whose blend trades at a discount to benchmark Brent, hope to ship even more crude to the United States in the coming months and years.

Yusufov said Russia is interested in creating its own reserves that would be used to help major energy consuming economies avoid fallout from price spikes in times of political volatility.

Also getting into the act is state-owned Rosneft, Russia's seventh-largest producer. Late Tuesday, Rosneft announced that it had teamed up with U.S. Marathon Corp. to create the Urals North American Marketing, or UNAM, joint venture to transport and market Russian crude in the United States.

The two companies said the deal is subject to final approval by both sides but that the expected start date for the venture is in the third quarter of 2003.

"UNAM is intended to help establish the United States as a significant long-term marketplace for Urals crude, while providing the United States with added diversity of crude oil supply," the companies said in a joint statement.

A featured speaker at the summit, ConocoPhillips chairman Archie Dunham, said that in the next two to three years Russia could feasibly ship enough crude to impact U.S. markets.

However, he warned that Russia still needs to do more work -- such as passing production-sharing agreement legislation to stabilize taxation and protect contracts -- to lay the foundation to be a major player in the U.S. oil market, Dow Jones reported.

Conoco was one of the first Western companies to invest in the Russian oil sector, launching the Polar Lights project with LUKoil and Rosneft in 1991.

Dunham said the project was not very profitable because export laws and tax laws "have seemed to change every month," Dunham was quoted by the Houston Chronicle as saying.

"ConocoPhillips is eager to do more in Russia as soon as the administrative and commercial basis for our cooperation can be strengthened," he said. "In particular, we need to see the adoption of a consistent and comprehensive production-sharing agreement framework."

Economic Development and Trade Minister German Gref told participants that the energy law with the production-sharing guidelines could pass late this year or early next year, depending on how the second, third and fourth readings of the 2003 budget play out.

Commerce Secretary Donald Evans mentioned the PSA problem in opening remarks, saying, "This important legislation needs to be passed soon so there can be certainty in Russia's oil and gas investment climate," the Chronicle reported.

Even before the summit was half over, Yusufov and Gref called for another one next year, but in Russia.

"I hope that by the next meeting of this sort we can progress on issues ... despite some daunting economic hurdles," Gref was quoted by Itar-Tass as saying. "Investors can be sure that they will be supported by the Russian government."

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