The Moscow Times
Thursday, March 17, 2005. Issue 3126. Page 5.

Oganesyan Warns of Slowdown

Combined Reports

Itar-Tass

Federal 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)

From: Emil Lazarian | Ararat NewsPress