Chris Doss The Russia Journal ----------------------------
strana.ru January 17, 2002 Russia Lining Up for Global Oil Dominance Again, Say Experts Export tariff cut points to new expansion By Michael Stedman
World oil industry analysts forecast on Thursday that Russia's relations with the OPEC cartel were set to turn "downright nasty" after Kremlin moves to cut the oil export tariff by two-thirds, boosting expansion capacity of the country's oil giants.
The move takes effect on February 1, setting Russian suppliers on a more aggressive course to foreign-asset acquisition plans, says a new report by U.S.-based global intelligence specialists Stratfor.
Prime Minister Mikhail Kasyanov's approval for a new tariff of just $1.25 a barrel was near-certain, the experts believe, quoting other reports and Russia's Alfa investment bank saying this will give Russian firms about $150
million a month in extra income.
This "should allow those companies to rapidly expand their operations at home and abroad," Stratfor says on its respected commentary website.
"Increased oil production will lead to a stronger international presence for
Russia both economically and politically, as well as damage the ability of the Organization of Petroleum Exporting Countries to function effectively."
Production down to about six million barrels a day in 1998 was up to 7.1 million last year and year-on-year gains were now expected for the next decade, the analysts say. They noted three "underlying realities" behind the
tariff cut.
Lack of investment was the single largest barrier to sustained industry development and this was aggravated by a high tariff, their report says.
It goes on to say that a lower tariff rate was a tool to ward off rival pipeline projects seeking to limit Russian involvement.
"Three such pipelines - one from Azerbaijan to Georgia, one tapping Kazakhstan's Tengiz field and one heading south through Iran - have already entered operation. Russia needs to block the others for economic and political reasons."
Russia also needed to drive up oil flow "both to improve revenue and make itself more valuable to Europe, as increased exports from Russia will allow European countries to decrease their dependence on OPEC," Stratfor commented.
"Lower rates allow Russian firms to reinvest in their operations in order to
ramp up production levels."
Heavy investment by industry leader LUKoil in the Balkans and Kazakhstan, number two Yukos linking up two Central Europe pipeline networks allowing direct exports to the Adriatic and other firms active in the Baltic states, Central Asia and the Caucasus were cited as investment projects pointing the
way ahead.
"Russian President Vladimir Putin has proved time and again that he is a master of using such economic links to broaden Russia's foreign policy reach," the report authors say.
"But the increase in Russia's oil production due to the lower tariff will have an even bigger global impact. If Saudi Arabia holds to OPEC's January 1
production cut of 1.5 million barrels a day, Moscow will emerge in 2002 as the world's largest oil producer, a title it has not held since the Soviet days."
OPEC correctly feared Russia would turn its massive production capabilities into massive export capabilities, the analysts observed.