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RUSSIAN OIL INDUSTRY.
Term Paper ID:29152
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High level of oil production.... More...
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Paper Abstract:
High level of oil production. Russia as the world's single, largest non-OPEC oil exporter. Privatization since the mid-1990s and U.S. investment for exploration, equipment and rehabilitation of oil fields. Planned Caspian Sea Pipeline. Russia's defiance of OPEC policies. Russia's untapped oil reserves and the country's continued economy recovery growth. Major Russian oil and gas companies. 3 Tables.
Paper Introduction:
Russian Oil Industry
Introduction
Russia is currently the world’s single-largest non-OPEC (Organization of Petroleum Exporting Countries) oil exporter, with 10 percent of currently known reserves and 9 percent of world output (Aron, 2002). For about a decade, the Russian oil sector has been privatized, leading since the mid-1990s to a US$5 billion wave of investment in exploration, equipment, and rehabilitation of oil fields damaged by Soviet policies (Aron, 2002). According to analyst Leon Aron (2002), the shift from government-controlled to privatized oil production has resulted in a 15 percent production increase in the past two years and an anticipated increase of 11 percent in 2002 over 2201. In fact, in February of 2002, Russia pumped more oil than Saudi Arabia.
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FSU Energy, 7(18), 7-8. Table 1: Russian Oil Output by Company (1, barrels/day)Company 2 1 2 2 % chg.Lukoil * 1,572.4 1,61 .6 +2.4Yukos 1,167. (2 1). Russian oil companies embarked on an orgy ofborrowing, with what O'Sullivan (1999) characterized as a minimalunderstanding of the concepts of rational economic analysis or the creationof shareholder value, until a sector decline in 1998. Global oil prices soared 35 percent in only twoyears, providing Russia with an influx of hard currency that facilitated ahigher level of economic stability in the country. Inthe first quarter of 1999, OPEC and its associates reached an agreement toreduce production in an attempt to reverse the decline in prices which wasthen wreaking havoc on national economies. Tatneft 494.3 486. 4). In1996 and 1997, Russia was the world's favorite market; following thereelection of Boris Yeltsin to the presidency in June 1996, the illusion ofpolitical stability convinced Western investors that Russia was an idealinvestment locus. Unlike the US Strategic Petroleum Reserve and other emergencystockpiles held in consumer countries, the Russian supplies would be heldby a major exporter and used to manage the oil price directly - a role thatOPEC has traditionally assumed on its own. (2 1). The largerintegrated oil corporations founded since the demise of the Soviet Unionare experiencing a period of further contraction, leading to a reduction inthe total number of such companies and a new emphasis on economies of scaleand scope (Gorst, 1998). Russian Oil IndustryIntroduction Russia is currently the world's single-largest non-OPEC (Organizationof Petroleum Exporting Countries) oil exporter, with 1 percent ofcurrently known reserves and 9 percent of world output (Aron, 2 2). Energy Intelligence Briefing, June 3, 1. Rosneft 1,237.2 291.34 4.14 Purneftegaz 8 3.8 189.28 4.21 Sakhalinmorneftegaz 126.3 29.74 3.61 Krasnodarneftegaz 1 6.9 25.17 2.99 Stavropolneftegaz 94.6 22.28 4.65 Dagneft 3 .1 7. In August of 2 1, Russiadefied OPEC and elected to boost its own oil production - a move welcomedin the United States (Analysis: Oil boom..., 2 1). Andre Titarenko (2 1) reportedas 2 1 ended that improvements in US-Russian relations and a movement awayfrom OPEC for Russia were combining to improve oil and gas production andrevenues in the country. (2 2). If carried out, saysDracheva (2 2 , such a plan would transform the politics of theinternational oil market and create another source of supply in a marketemergency. The major players at the present time are Lukoil, Yukos,Surgutneftgas, Tyumen Oil (TNK), Tatneft, and Sibneft (Powell, 2 2). Russia pumps it up. 8 7.24 4.48 Samotlorneftegaz 1,346.5 317. Rosneft is a state-ownedcompany that controls affiliates in 19 regions of the country, while TNKoperates in the Tyumen region of western Siberia (the largest region ofunderdeveloped hydrocarbon reserves in Russia, with highly productive wellsproducing high quality sweet crude oil). Surgutneftgas - another massive company - prospects, does gas-and oil-field construction and development, oil and gas production andmarketing. Financing the Russian oil industry in thepost-crisis world. -1.7Sibneft 413.5 524.1 +26.7* Lukoil data include production outside Russia.Russian crude production including gas condensate, May 2 1; (Russianmajors make..., 2 2, p. With respect to the future, analysts believe that continuedrestructuring, greater amalgamation, and an overall improvement in theRussian economy are needed to advance this sector (The limits of growth,2 2). While the current level of oil production in Russia serves as a locusfor both opportunities and challenges, the creation of the planned CaspianSea pipeline is seen as creating a new source of petro-wealth for Russia(Powell, 2 2). $14.5 .8 6.8Lukoil $14.3 1.6 12.9Sibneft $ 8.6 .4 4.6Tatneft $ 1.7 .5 6.5(Powell, 2 2, p. Dracheva, M. Available athttp://power.about.com/library/weekly/aa1116 1a. Gorst, I. 9 1.69 Yugneftegaz 22.5 5.3 3.21 Termneft 11.3 2.66 2.73 Grozneftegaz 41.7 9.82 9.16Gazprom 837.7 197.26 1.81Rostoprom 53.4 12.57 7.88Tatneft 2, 88.3 491.76 2.98Bashneft 993.8 234. FSU Energy, 6(27), 14. Particularly appealing was the oil and gas sector, whichO'Sullivan (1999) characterized as populated with companies having hardcurrency earnings from a commodity that sold for high prices oninternational markets. The agreement betweenthe Saudis and Iran in the late 199 s to limit oil production in order tofirst stabilize and then shore up global oil prices was a godsend for thetroubled Russian economy. 189. Petroleum Economist, 66(6), 65-68. Under direct instruction from President Putin,government energy officials and leaders of the major privatized andvertically integrated firms are drawing up an initial outline of the plan.The goal is to provide a counterweight to Middle East producers and, notcoincidentally, to diminish the power of OPEC. In fact, in February of 2 2,Russia pumped more oil than Saudi Arabia. The New YorkTimes, May 5, A15. The Russian oil boom has been prompted by heavy investment inupstream production by companies that have new cash reserves after threeyears of a strong demand for crude and low domestic operating costs. O'Sullivan, S. Russia: How much of a reserve tank? More significantly, such a plan would have the effect ofaltering the balance of power in the world oil market. According to analyst Leon Aron (2 2), the shift fromgovernment-controlled to privatized oil production has resulted in a 15percent production increase in the past two years and an anticipatedincrease of 11 percent in 2 2 over 22 1. References Analysis: Oil boom splits Russia from OPEC. Fortune, 145(1 ), 84+. Aron, L. 89). The following table provides data on five companies that illustratesthe growing power of the Russian oil companies. security. 9 5.56 Manoil 58.3 13.73 6.58Surgutneftegaz 3,675.4 865.5 4.23Sidanco 777.9 183.18 4. A number of companies in the sector took on debtsthat were excessive and experienced trouble in repaying them; the endresult was a move toward structural reform of the Russian oil industry. 2 1.84 Komitek 369. 14.)Future Forecast Dracheva (2 2) commented that Russia is now engaged in drawing upplans to build a strategic stockpile of crude oil that would be used toprovide emergency supplies to the world market and to serve as a mechanismto stabilize oil prices. Petroleum Economist,65(2), 3-4. Forabout a decade, the Russian oil sector has been privatized, leading sincethe mid-199 s to a US$5 billion wave of investment in exploration,equipment, and rehabilitation of oil fields damaged by Soviet policies(Aron, 2 2). (2 2). 8 4. 3.93Sibneft-Noyabrskneftegaz1,665.1 392.1 5.15Slavneft 1,255.4 295.63 3.64 Megionneftegaz 1, 56. The limits of growth. 9.73 Kaliningradmorneft 55. At the same time,however, the internal structure of the Russian oil sector is also changingas more investment funds reach the country (The limits of growth, 2 2). Powell, B. Table 2: Profile of Five Russian ProducersCompany Market Cap 2 1 Production Proven Reserves In Billions Millions/B/D Billions BarrelsYukos $21. Russian majors make a dash for growth. 8 Nizhnevartovskoye NGDP 421.4 99.23 4.51 TNK-Nizhnevartovsk 546.6 128.72 4.17 TNK-Nyagan 267.7 63. This report will examine the role of the Russianoil industry in contemporary international markets and related issues,arguing that the outlook for the industry's future is still somewhatuncertain due to political as well as economic concerns.Role of the Russian Oil industry In 1998, Gorst (1998P predicted that a contraction in the number ofprivate oil companies active in Russia would be forthcoming, with a sensethat the industry would best be managed by no more than four to six largecompanies. For Russia and for Putin, according toPowell (2 2), a new relationship with the United States on oil matters isessential in facilitating Russia's continued economic recovery and growth. 2 4.17(Russian oil production, 2 1, p. (2 1). 26,271.4 6,186.49 4.19Lukoil 5,378.8 1,266.62 3.71 Lukoil West Siberia 3,851.8 9 7. Table 3: Russian Oil Production May May % chg ' t ' b/d Apr 1VerticallyIntegrated Cos. 248.67 3.83 Varyeganneft 115.7 27.25 3.77 Obneftegeologiya 22.3 5.25 -1.33 Nafta-Ulyanovsk 7.5 1.77 11.94 Uzunneft 2.3 .54 9.52 Krasnoyarskneftegaz .5 .12 -16.67 Sobol 35.8 8.43 11.18 Arigolneftegeologiya 15.3 3.6 -14.53 Megionneftegaz . Available at www.comtexnews.com. Knight-Ridder/Tribune Business News, June 16, Item 2167 67. Bush and Russian leader VladimirPutin met for the first time, with oil a major agenda item in theirdiscussions (Russia: How much..., 2 1). Equally important from the Russianperspective, is the need to convince Western investors and U.S. A collapse in the price of oil and othercommodities undermined the country's balance of payments, tax revenues, andcorporate profitability. oilcompanies to commit huge long-term funding to the development of Russianreserves in Northern and Western Siberia (Russia may turn..., 2 2). Russian oil is seen in part as comprising a "stand-by reserve" thatmay well be needed if the current geopolitical situation deteriorates(Russia: How much..., 2 1). President George W. 4 3.33 Permneft 455.5 1 7.26 3.85 Bitran 41.4 9.75 3.5 Nobel Oil 11 .5 26. Tatneft is an open joint stock company from Tatarstan, one ofthe most developed regions in Russia, that has recently demonstrated stablechemical and other sectors of the Russian economy; the firm is heavilyinvested in the production, transportation and marketing of natural gas(Titarenko, 2 1). (2 1). 1,4 5.8 +2 .5Surgutneftegas 884.2 943.9 +6.7Tyumen Oil (TNK) ([dagger]) 815.5 726.3 -11. 12.95 1.85 Astrakhanmorneft 6.5 1.53 4.84Yukos 4,88 .4 1,149.26 5.23 Yuganskneftegaz 3, 9.7 7 8.74 5.51 Tomskneft 1, 9.4 237.7 4.23 Samarneftegaz 8 3. (1998). PetroleumIntelligence Weekly, 41(7), 4-5. Russia may turn deaf ear to OPEC plea for oil curb. Russian oil companies suffered more than most from the economicdebacle that emerged in 1998. htm. Though Russia's untapped oil reserves in Siberia and the Caspian Searegion are the most extensive in the world, the country is seen as moredependent than ever before on a healthy global economy and highinternational prices for its own oil exports for domestic prosperity andsurvival. The oil price will remain the most significant determinant in theperformance of all oil firms. Giventhe new accord between the United States and Russia and the American needfor increased oil supplies, Putin is seen as responding positively toAmerican requests and as not willing to push up prices while tensions inthe Middle East remain high. 86.89 4.98 Lukoil Perm 234.3 55.17 2.9 Nizhnevolzhskneft 254.8 6 . Russian oil and U.S. 3 Udmurtneft 431.8 1 1.68 2.98 Saratovneftegaz 123.4 29. Dracheva (2 2) also noted that this "state reserve" would be ofeconomic value to Russia as well as the consumer countries that are likelypurchasers of such reserves. Twelve into four may go. . Titarenko, A. Russia is emerging as a vital alternative toMiddle East oil, and with the end of the Cold War and Russia's involvementin Afghanistan (as well as the Caspian Sea region reserves and the plannedpipeline) the country is in an excellent position to move forward as amajor oil producer and suppliers.Russia's Major Oil Companies The major oil and gas producers in Russia were described by Titarenko(2 1) as including Lukoil, the leader in Russia's fuel and energy complexand the first Russian integrated oil company operating according to theprinciple of "from oil well to filling station." Yukos is the largestvertically integrated Russian firm, engaged in everything from geologicalexploration to marketing refined oil products. Gorst (1998) noted that as of the late 199 s, the Russianoil industry was undergoing a major transformation, with smaller companiesbeing amalgamated or swallowed up by the larger organizations. 6 4.14 Varyeganneftegaz 218.1 51.36 6.13 Novosibirskneftegaz 4.6 1. 8 2.22Tyumen Oil 3,428. Russian oil production. Russia plans strategic stockpile to manage oilmarket. Sibneft is another large integrated oil company and is one of theworld's top twenty private sector oil producers in terms of reserves. (2 2). Russia is also seen by analysts as unlikelyto respond positively to OPEC demands for production curbs; with the sectorenjoying a renaissance after a decade of decline, the oil czars and theRussian government are unlikely to regard OPEC's calls for reducedproduction as viable (Russia may turn..., 2 2). OPEC members are rivals in the fight for Western oil dollars(Analysis: Oil boom..., 2 1). In their various meetings, says Powell(2 2 , Putin and Bush have come to agreements regarding the willingness ofRussia to make available increased oil should this become necessary as theUnited states continues its war on terrorism. In 2 1, U.S. Thephilosophy of Russia's oil barons has changed with a new emphasis oninvestment to increase the overall competitiveness of the industry. Sidanco is a leader in theindustry, with minor participation from British Petroleum. Russia is seen as having the potential,because of its vast reserves and the plans for the Caspian Sea pipeline, tochallenge the traditional oil market management role that has been assumedto date by OPEC. The following data were generated by Petroleum Intelligence Weekly(Russian majors make..., 2 2) are illustrative of the output levels of theRussian major oil producers. 4 7.12 Orenburgneft 572.7 134.86 6.63 Neftepromprodukt 9 .5 21.31 -6.51 Tyumenneftegaz 182.6 43. (2 2). OPEC's decision to reduce production to spur price increases wasinitially accepted by Russia and then rejected. Thisfirm's core upstream assets are concentrated in Noyabrsk in WesternSiberia. Russian oil and gas sector. Themarket for oil shares is now a two-tier system, with Yukos and Sibnefthaving pulled dramatically ahead of their peers. (1999). With respect to the reserves currently held by these major companies,Powell (2 2) reported that five of the top companies are in excellentposition to provide much-needed supplies to the West should any disruptionin Middle Eastern oil occur. (2 2). The following table depicts Russian crudeproduction including gas condensate as of May, 2 1; it serves toillustrate the production capacity of the major vertically integratedRussian companies in this sector according to their various business unitsand/or production centers. Business Week, 3755,32. As Powell (2 2) noted, theSeptember 11th attack on the United States was instrumental in bringingRussian support to the West; Russia's oil czars have acted against thedemands of OPEC that production be cut and have demonstrated (as had Putin)their willingness to support the West in the current struggle againstterrorism. 1.2 11.8Surgtenft. Their respective shareprices have risen by 8 percent and 145 percent since the start of 2 2,while the performance of other firms in the top echelon of the verticallyintegrated sector less impressive. (2 2). United PressInternational, August 24. In the Russian Trading System Index (RTS), four large oil firmsaccount for 53 percent of total capitalization; these stocks are enjoyingincreases of 65 percent in 2 2 thus far (The limits of growth, 2 2).
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