Russia keeps distance from OPEC

Russia kept its observer’s status at this week’s summit conference of the Organization of Petroleum Exporting Countries (OPEC), and avoided taking the plunge into membership of the international oil cartel that was hinted at by the Kremlin last week.

At the same time, the Kremlin is playing a siren song to attract greater coordination of the international gas trade when the cartel of gas producers meets in Moscow next Tuesday, December 23.
The OPEC cut of 2.2 million barrels per day (bpd) in output quota announced this week will not be supplemented by a fresh Russian cut, although Igor Sechin, the deputy prime minister in charge of the oil sector, announced at the OPEC meeting in Algeria that if

crude prices did not start to recover next year, Russia would cut export volumes by another 320,000 bpd, following the 350,000 bpd export cut in November.

The projected cut looks likely to occur whatever Sechin says, because falling prices have reduced incentives to produce among the smaller Russian producers, and the majors are also cutting back on field expansions, while delivering more of their crude to domestic refineries, instead of to the ports for export as crude.

The Russian move was considerably less than the 400,000 bpd cut OPEC members had sought. Also, Russia has not agreed to a specific cut by a specific date, as the OPEC countries have done. Industry sources note that it is more difficult for Russia, compared with leading OPEC members like Saudi Arabia, to close down producing wells, as the harsh operating conditions in Siberia make it difficult to recommission the wells later.

Russian President Dmitri Medvedev had triggered speculation that Russia might join OPEC, when he said last week that the country must defend its interest in an era of higher oil prices, noting that this could include “a decrease in oil production, or have participation in currently existing [or new] exporters’ clubs”.

Asia Times