Russian Oil Production Up but Resource Nationalism Continues

lthough Russian news agencies reported that oil production, which includes gas condensates, has increased by 2.8% to reach a level of 285 million tonnes in January through July 2007, the hidden crackdown by Moscow on the private oil sector continues. The Russian Ministry of Oil has reported that during the first seven months of 2007, overall primary oil refining increased by 5.2% to reach a level of 132 million tonnes, while gasoline output increased by 5.8% to 20.4 million tonnes. At the same time, total refinery production of the country has been around 35.7 million tonnes of fuel oil and 1.5 million tonnes of lubricants, respectively an increase of 5.7% and a decrease of 12.7%.

The latter picture shows a slightly positive situation, supporting claims made by Moscow that its oil sector is booming. However, international agencies continue to warn that Russia, based on its current investment portfolio, will not be able to supply contracted export volumes around 2012, confronting Europe with a very negative situation.
o supply contracted export volumes around 2012, confronting Europe with a very negative situation. How much the Russian figures can be trusted is still a question, as no outside independent financial analysis is available. Under Russian law, most companies, especially state-owned, are not obliged to give a full update on production, sales and revenues. It seems that Russia is following the same line as most OPEC oil and gas companies, leaving most of the analysis open for speculation.

At the same time, Russian president Vladimir Putin’s crackdown on privately owned oil and gas companies in Russia has made a new victim. The already very disputable Russian legislature has again forced a Russian player out of the game, when a Russian court reported that it had ruled the Russian state should be handed full control over $7-billion worth of oil assets previously owned by private companies based in the Volga region of Bashkortostan. This new move is one in a long line of enforced Russian state control over its formerly booming private sector.

In addition to the current resource nationalistic strategies employed by the government, new surprises are already in the making. Russian government officials have indicated that they are preparing new, much stricter rules on the use of Russian mineral resources by foreign companies. In a remark to the press, Russia’s Mineral Resources Minister Yury Trutnev stated that there will be new proposals entailing that foreign companies be prohibited from acquiring a controlling stake in the development of all offshore deposits and any onshore deposit containing more than 70 million tonnes of oil, 50 billion cubic meters of gas, 50 tonnes of vein gold or 500,000 tonnes of copper.

Resource Investor