Rate of growth of Russian oil exports is slowing

Russian oil output boom slowing fast
Russian production fell for the fourth straight month, according to the International Energy Agency.
February 10, 2005: 7:14 AM EST

LONDON (Reuters) – Russian oil output, which has grown 50 percent in six years, fell for the fourth straight month in January, another sign of a sharp slowdown in growth this year, the International Energy Agency said Thursday.

Russian production fell by a provisional 110,000 bpd to 9.26 million bpd as supply declined from beleaguered producing giant YUKOS and as output dipped seasonally from the Sakhalin project, the IEA said.

Firms’ downbeat output targets for this year also prompted the IEA’s monthly Oil Market Report to reduce its forecast for 2005 Russian production growth to 350,000 bpd, or 3.8 percent, compared to 8.7 percent in 2004.

“Recent years have seen a sharp tailing off in growth which if continued, points to a less pre-eminent role for Russian supply growth in 2005,” the IEA report said.

Blistering production growth in recent years has caused Russian output to rise by 600,000-800,000 bpd every year since 2001.

Russia accounted for 95 percent of non-OPEC supply growth in 2003 and 75 percent last year, but the rise has been slowing since September 2003, the IEA said.

“For 2005, Russia may see growth rates lagging those of producers like Azerbaijan, Kazakhstan, Brazil and Angola,” the IEA said.

The slowdown in Russian growth is good news for the OPEC cartel, which has seen its efforts to regulate world supply, especially during the economic slowdown after September 11, frustrated by booming Russian exports.

A recent Reuters poll of analysts showed an average forecast of oil output growth of 5.5 percent to 9.72 million bpd in 2005, down from over nine percent in 2004.

YUKOS, taxes, export constraints
YUKOS, one of the leaders of the decades’s output rise, has been crushed by a huge back-tax claim. Its main production unit Yugansk has been sold to state-run Rosneft, marking the Kremlin’s efforts to tighten its grip on Russia’s oil sector.

The IEA said it had held production estimates from YUKOS units flat at January levels but warned they could drop.

Weaker production levels were also recorded in recent months from Sibneft, Bashneft and Tyumen Oil Company (TNK), the IEA said.

Across the industry, other factors including export capacity constraints, higher production taxes and an uncertain regulatory environment are curbing upstream growth, analysts say.

“Until these measures are clarified, potentially in the second half of 2005, producers may indeed curb investment, with a corresponding slowdown in production,” the IEA said.

“Stronger production growth could return when the shape of Russia’s upstream investment/operating environment become clear,” it added.

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