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The Russian Federal Energy Agency on the end of cheap oil

Interview by Fernando Gualdoni of Serguei Oganesian, Director of the Russian Federal Energy Agency by El Paнs. Spain.

Below are excerpts translated from a spanish article by Petro from Madrid. The full article in spanish is available here.

"Government is not interested in Yukos being broken"


Q. What levels should have oil for the investments to account for in this Russian sector?

A. It is difficult to calculate the production costs of one ton of Russian oil. There are big differences in the climatic and economic conditions, efficiency and deposits potential, as well as in the state of the art of the companies. The crude itself its differentiated by its physical properties. Tha fact that the big oilfields are far from the main trunk pipelines, influences the costs. In reality, the oil business in Russia is several orders of magnitude more expensive than in the Arabian Peninsula. But there are still some wishing to invest in our sector, in the hydrocarbons sector in particular. There are 11 vertically integrated companies operating and a hundred small and medium producers, many of the in joint ventures. I would like to give some figures to better answer your question on investments. In 2003 the Russian oil companies invoiced 50 billion US$. After paying 25 billion in taxes, their net profit was a 35.7% last year. The companies reinvested some 5 billion and some 20 billion remained for credit paybacks, shareholders, etc.

Q. Russia is already producing more than 9 million barrels a day. What is the upper limit of your country?

A. In the first four months of 2004, the crude production rose in 14.2 million tons, with respect to the same period last year. In 2004, the Russian oil sector will grow between a 7 and 8%. The crude production in Russia will change as a function of the socio- economical scenarios in the country. In the optimist scenario, in 2010 the oil production in Russia will be of 490 million tons and in 2020 will reach 520 million tons.

Q. How much oil is exported?

A. In 2003 the crude exports were growing faster than production and were 228.5 million tons. Crude sales gave to the Russian companies benefits for 38.8 billion US dollars. As per our forecast, in 2004, Russia will export 251 million tons of crude and in 2005, from 249 to 262 million tons.

Q. How do you think will evolve the prices of crude oil in the short and medium term?

A. There are various factors explaining the high levels of crude in this moment. Apart from the increase in the demand, speculation and the violence in the Middle East, I would like to mention a couple more. First: in the world, the situation of the proven reserves is started to be questioned. The most recent estimates point that they will deplete between 35 or 40 years from now. Although data can be objected, because there are more than a dozen of methodologies to calculate reserves, the figures are far from being nonsensical. The proven reserves of crude oil are being exhausted. Second: We are aware that it is very unlikely that Russia will have new discoveries of big oilfields. And the development of the ones already operative is more and more difficult and costly, as they are in the polar seas. Besides, they are very far from the trunk pipelines. The production and transport of oil is every day more difficult and expensive. Due to this, I believe Humanity must accustom to live with an expensive oil, to treat hydrocarbons as a non renewable resource and to look for alternative energy sources. It seems that oil is not going to be cheaper.

Editorial Notes: Pedro from Madrid writes: The Russian director confesses partially. He still talks "business as usual" and expects his country to grow 7-8% annually (optimistic scenario), in which case, the exports may decline, even the local production is still set to increase –nobody knows for how long-, but then expects that people will treat oil as a non renewable resource. He explains and admits that there is oil for 35-40 years, but does not explain that this is "at current production levels" and that "current production levels" can not be sustained if the Hubbert curve is right. He admits his oil is several times more expensive than the one in the Gulf. And answering about the concern for the foreign investors, he goes in an ellipsis and says they won 35.7%, after taxes, in one year, which is substantially more than what my bank pays to me or my salary increase or my pension. Clever guy. They start confessing, but still keep their "business as usual" face. We will see for how long.

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