ESAI: IEA’s Russian oil production forecast ‘optimistic’

Dec. 16 – A recent International Energy Agency forecast of Russia’s crude oil production is “unjustifiably optimistic,” argued a report from Energy Security Analysis Inc. (ESAI), Boston.

IEA projected Russia’s 2005 crude production to average 9.64 million b/d, implying growth of 420,000 b/d relative to 2004. ESAI sees incremental crude output in 2005 growing by a maximum of 200,000 b/d, with the possibility that emerging factors could reduce this forecast further.

“After reaching an absolute post-Soviet peak of 9.49 million b/d in September, Russia’s average daily production has been falling for 2 consecutive months, and November’s drop was the largest single-month decline since January 1999,” said Yulia Woodruff, ESAI’s Russian analyst.

Data for the first week of December suggest that the decline will continue in the immediate future, ESAI added.

“The sharp slowdown in growth cannot be attributed to either an unfavorable tax environment or to export capacity constraints,” said Woodruff. Instead, ESAI believes the two main factors are the campaign against Yukos and the limited availability of easily accessible, commercially recoverable reserves.

“Last year, Yukos was a major source of Russia’s production growth,” Woodruff said. “In the first 10 months of 2003, the company added 485,000 b/d, but in the same period in 2004 there was a tenfold drop in the rate of growth.”

At the same time, growth rates for companies that have not been targeted by authorities, such as OAO Sibneft, OAO Lukoil, and OAO Rosneft, have declined as well, ESAI.

“As this decline has taken place in an extremely favorable price environment, the concern is that what we are seeing is not just a bump in the road, but a reversal of the trend,” Woodruff said.