Business | Oil & Gas
Uncertain investment climate blamed for production slump
Russia's slumping oil production is partly due to increasing pressure on ExxonMobil's Sakhalin-1 oil and gas venture.
- By Catherine Belton, Financial Times
- Published: 00:33 April 19, 2008
Moscow: Russia's slumping oil production is partly due to increasing pressure on ExxonMobil's Sakhalin-1 oil and gas venture as the state continues to tighten control over the energy sector, said William Ramsay, deputy head of the International Energy Agency.
Ramsay, who visited Moscow last week for energy talks with government officials, said the drop in output in Russia in the first three months of this year was largely due to uncertainty over the investment climate. The one per cent drop in oil output in the first three months of this year has prompted warnings that Russia could see its first overall decline in output in a decade this year, sparking fears over its ability to meet growing demand in Asia.
Ramsay said the decline marked a new stage following a slowdown in growth since 2003. "We're at a different point. It's an unfortunate point," he told the Financial Times. "But we think it [could] be reversed if investment conditions were more amenable to generate investment."
In addition to the heavy tax burden on the oil industry and uncertainty over foreign access to new strategic fields, "part of this is related to the positioning on gas exploration on Sakhalin-1", he said. "Resolving that issue would be a boost."
Hurdles
Gazprom, the state-controlled energy group, has blocked ExxonMobil's Sakhalin-1 oil and gas venture from exporting gas to China under a contract the US oil giant signed with Beijing in 2006, as it seeks to consolidate its control over gas exports.
Sakhalin-1 had supplied much of Russia's output growth in recent years, reaching peak production of 250,000 barrels a day last year following investments of more than $12 billion by Exxon with its partners Rosneft of Russia, Japan's Itochu and Marubeni and India's ONGC. But Rosneft has said it expects annual oil production this year to fall by 25 per cent.
Exxon said it was not its policy to release information on production forecasts. The company, however, added it was "in discussions with Gazprom regarding potential options for delivering pipeline gas to north-east China and other markets".
Ramsay said Exxon had been unable to expand production because it could not market the associated gas produced together with the project's oil output. "If you can't deal with the gas you can't expand production," he said. Exxon's failure to get permission to expand drilling at its existing fields is "wrapped up in the resolution of the same issue of who has control of the gas."
Projects led by foreign oil groups have been under increasing pressure as the state seeks to reassert control over the energy sector. Police raided TNK-BP, the oil venture 50 per cent owned by BP, last month, ostensibly in regard to an industrial espionage case. But bankers say the onslaught is connected to a renewed effort by Gazprom to take a stake in the company.
Ramsay said the uncertain clim-ate was making it difficult to go ahead with investment. But he believed there was a growing understanding within the Russian government that the standoffs had to be resolved. "I don't believe those who say we'll never see these levels of production again."
Business Editor's choice
-
‘Wrong Way' Krugman
The source of our economic malfunction lies with government-mandated bank regulations
-
Greek exit could make Eurozone stronger
Departure will show limits of bailouts and allow remaining members to act much more like a unit
-
UAE upholds values of free trade
Recently released statistics confirm an established fact, namely that of the UAE embracing the free trade principle in general and imports in particular
