Lukoil boss urges Moscow to join Opec output cuts

Moscow: A Russian oil billionaire urged Moscow to join Opec's output cuts just as the country's big oil companies reduced their November export plan by 10 per cent, blaming the government for keeping export duty extra high.

Leonid Fedun, vice-president and shareholder in Russia's No 2 oil firm and largest private producer, Lukoil, told an investment conference on Wednesday Russia should join Opec and could cut output and exports by 300,000-400,000 barrels per day.

"[Joining Opec] will be only good for Russia," he said.

"We are seeing that Russia and Opec are beginning to cooperate. I believe the future of the Russian industry and price stability hinges on close cooperation with Opec, to the extent of Russia joining Opec," Fedun said.

Fedun's comments were a surprise after Russian officials and even Fedun's boss, Lukoil Chief Executive Vagit Alekperov, said earlier this month that Russia should keep policies independent from the Organisation of the Petroleum Exporting Countries.

Russia's growing ties with Opec have unnerved global consumers already worried by talks between Russia, Iran and Qatar to create an Opec-style gas group.

Fedun spoke one week after Opec Secretary General Abdullah Al Badri met Russian President Dmitry Medvedev in the first ever talks between Opec and the head of the Russian state.

Al Badri said he would not ask Russia to cut production and senior Russian energy officials said the country could become a swing producer in the long-term. Unlike Middle Eastern producers, Russia cannot shut down oil wells in Siberia because any production halt requires an expensive repair operation.

But the Russian officials revived a decade-old idea of setting up an oil reserve. This would allow Russia to accumulate oil during periods of low prices and export more when prices are high.

Cooperation

Valery Nesterov, an oil analyst at Troika Dialog brokerage, said he doubted Fedun's words meant Russia's government was seriously considering joining Opec.

"Russia and Opec will have to cooperate in the current environment but it does not require massive efforts on behalf of Russia, because production is falling anyway," he said.

Russian oil production is heading for its first annual decline in a decade, as it is down around 1 per cent since the beginning of this year.

Fedun said production could fall by 1.0-1.5 per cent next year, which would facilitate Russia's help to Opec. He added that executives from private Russian oil companies could attend Opec's next December meeting in Algeria.

Fedun said Russia could afford to cut production and exports by 300,000 to 400,000 barrels per day (bpd), or around 3 or 4 per cent of its current production.

While future production cuts are only at the discussion phase, Russian firms rushed on Wednesday to cut the previously agreed November export volumes by a tenth after the government decided against lowering oil export duties.

Trading sources said Russia's five biggest oil firms, Rosneft, Lukoil, TNK-BP, Surgut and Gazprom Neft, would reduce exports by at least 1 million tonnes from the earlier plan of 11.5 million.

"[Pipeline monopoly] Transneft's system is full and you can't store a lot. We might be forced to cut production at some point," one trader said.

Oil firms have repeatedly called on the government to cut the current export duty of $372.2 per tonne as it was based on crude price monitoring for early September and the price of oil has dived since then.

But the government said it would not change the duties before December as it needs to protect its budget interests.

Russia needs high oil prices as badly as some of the Opec nations as its budget is balanced at $75 per barrel this year and at $95 next year.

Deputy Finance Minister Dmitry Pankin said on Wednesday the 2009 budget was safe if oil price average $60 a barrel, but for the following year budget revisions or the use of reserve funds may be necessary.