Reuters Wednesday January 16 2008
By Tanya Mosolova
MOSCOW, Jan 16 (Reuters) – Russian oil output growth will fall this year below 2 percent for the first time since 1999, due to a lack of greenfield developments, stagnation at mature Siberian fields and rising capital costs, a Reuters poll showed.
A survey of 15 analysts and officials found on average that production would rise by 1.8 percent to slightly over 10 million barrels per day for the first time since the collapse of the Soviet Union.
“Russian production volume growth is likely to be between zero and one percent this year — something we have not observed since the late 1990s,” said Vadim Mitroshin from Credit Suisse, who gave one of the most conservative forecasts.
“With little variations, we expect this picture to be largely unchanged in the next two-three years, until Russia completes the East Siberia-Pacific Ocean pipeline, which is likely to make development of new fields in Eastern Siberia more attractive,” he added.
The world has long relied on Russia, the world’s second largest oil exporter after Saudi Arabia, for incremental oil supply as the country’s contribution amounted to over half a million barrels per day in some years.
But reliance has shifted back to the Organization of the Petroleum Exporting Countries (OPEC) in recent years as growth slowed in West Siberia and Moscow said production had reached a plateau.
Last year, production rose by 2.3 percent, a notch up from 2.2 percent in 2006, but much lower than huge spikes in previous years, including a record 11 percent in 2003 — before the state launched its drive to bankrupt private oil company YUKOS. Last year, incremental output from Russia amounted to 220,000 bpd.
If the forecast for this year materialises, the country will produce an extra 180,000 bpd — enough to supply a mid-sized refinery but a meagre contribution to the world oil balance.
“It shows that the potential of using new technologies and intensive drilling methods at existing fields has been exhausted and it cannot produce such results as in 2004-2005,” said Mitroshin.
ROSNEFT IN CHARGE
In 2007, some firms delayed winter drilling campaigns as unusually warm weather held back oil field work.
This could happen again this year, says Alexander Burgansky from Renaissance Capital: “We expect Russia to be producing flat to less crude year-on-year through April 2008, with some seasonal recovery thereafter.”
Renaissance trimmed its bullish forecast twice last year and Burgansky now gives the most pessimistic of all 15 estimates of just 0.5 percent production growth. This year will be one day longer than 2007, as it is a leap year.
The Energy and Economy ministries are less pessimistic, and forecast that production will grow by 1.7 percent.
Analysts said they expected most firms to show flat or lower production excluding Russia’s largest firm, state-owned Rosneft and second largest producer, private LUKOIL.
“Oil production growth in 2008 is expected to be driven by government-owned entities: Rosneft will lead the charge with organic growth from Yugansk and new production from Far Eastern Sakhalin projects,” said Xavier Grunauer from Nomura.
Mikhail Zanozin from Sobinbank expects Rosneft to grow by 9.2 percent. LUKOIL’s output will increase by 5.4 percent due to a new project in the Arctic Timan-Pechora province, home to its joint venture with U.S. oil major ConocoPhillips.
Russia’s eastern island of Sakhalin, which was a key growth driver in 200 after Exxon Mobil’s Sakhalin-1 project hit peak production of 250,000 bpd, will make a much smaller contribution this year.
Sakhalin-1 production is set to decline already this year to around 200,000 bpd.
Sakhalin-2, led by Gazprom and Royal Dutch Shell, should quadruple output to 160,000 bpd but that will depend on its ability to start year-round production.
(Reporting by Tanya Mosolova, editing by Anthony Barker)
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