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RIA Novosti
June 7, 2004
RUSSIA TO HELP COOL DOWN OIL MARKETS
MOSCOW. (RIA Novosti political commentator Yuri Filippov) - The G8 summit in Sea Island, USA, comes at a time of record-high oil prices. The situation is not critical for the global economy, but politicians, businessmen and economists in Europe, North America and Asia are starting to voice their concerns about a possible recession if oil prices continue to climb.
Even a political statement from the group that unites the leaders of the world's largest economies that the situation is under control or at least being closely watched would help cool the temperature on the markets. G8 leaders have every reason to believe that the world will listen to their opinion. After all, the elite club not only includes major oil importers in the form of the US, Japan and Germany, but also Russia, the world's largest oil producer that has recently started out-producing its main rival, Saudi Arabia.
Russia's daily oil output exceeds nine million barrels, and in five years Russian oil companies expect this figure to hit eleven million. The production increase is mainly designed to meet export needs, and the figure of five million barrels a day in exports is just a preliminary one set by the Russian government. It can be easily exceeded if the export price of Russian oil does not fall below $20 per barrel, a threshold for Russian producers that allows them to exploit Siberian oil fields at a profit, pay for the oil's transportation to Europe, explore new reserves and pay taxes to the Russian budget.
Of course, $20 per barrel is not the summit of ambitions for Russia's oil producers and Finance Ministry officials, who seek to fill the state budget with petrodollars, pay off Russia's large foreign debt and collect hard currency for the stabilisation fund for future generations to use. But Russia has no intention of falling victim to greed either. According to President Vladimir Putin, the upper threshold of acceptable oil prices for Russia is no higher than $25. This kind of statement, of course, should not be taken as absolute dogma, as the figures can change depending on the inflation rate, for example, but it is important in terms of political thinking and the very approach to the issue.
The point is that Russia is no Kuwait or Saudi Arabia, for whom oil is the only ticket to the global economy and where growing oil prices are always welcomed. Unlike these countries, Russia is not an OPEC member and considers itself to be a large, industrially developed nation. Oil is important, but not crucial for Russia's economic ambitions. When oil prices are too high, investment in sectors other than raw materials becomes relatively unprofitable, thereby creating disproportions in the Russian economy and contaminating it with "the Dutch disease", which as everyone knows begins with a short boom and ends in a prolonged crisis. The only efficient vaccine against this disease for Russia can be moderate oil prices, and in this respect its interests coincide with those of oil importers.
There is another sphere where common interests can be fulfilled - expanded sales. Russia's domestic demand for oil is fully met. Moreover, there is too much oil on the market, and sometimes it is not used rationally. The energy-saving revolution of the 1970s bypassed hydrocarbon-rich Russia, and if Japan uses one barrel of oil, the figure for Russia is two or even ten barrels. This profligacy will soon come to an end. Although the Russian government is trying to double the country's GDP by 2010 in line with President Putin's instructions, the volume of energy consumption will remain almost the same, the government estimates. Even domestic oil consumption will not rise significantly.
This means that any serious increase in sales for Russian oil companies that increase their output by at least 10% a year can only be achieved through exports. They are already making inroads into the West, moving further into the European Union and the USA, where the Yukos and LUKoil brands are already recognised. However, these companies' export opportunities are limited by the capacity of Russian oil pipelines and deep-water ports. This is perhaps the main factor inhibiting increases in Russia's oil exports. Russian pipelines are working at full capacity and even taking into account the projected Baltic pipeline, importers are unlikely to receive more than 1.6-1.8 billion barrels annually in the next one to three years.
G8 leaders, including President Putin, have naturally been thinking about Russia's new role in the world's energy policy. Moscow regularly receives such indications from European capitals, as well as Washington and Tokyo. The Sea Island summit will provide an opportunity to set out the principles of relations between major oil importers and the world's largest oil exporter at the highest political level. These principles may soon be decisive for the world's economic development in the near future.
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