After record August, can Russia pump more oil in 2009?
LONDON/MOSCOW (Reuters) - Official opinion conflicts with analysts' views over whether production from Russia's new oil fields can replace the fall from older deposits after record August output.
Analysts say the recent uptick might not be enough to offset stagnating western Siberia deposits, and it could be decades before sufficient infrastructure is in place to exploit new reserves in eastern Siberia.
"The real question is going to be how steep the decline comes...and what steps the Russian government is willing to take to improve investment in those fields," said senior energy analyst Julian Lee at the Centre for Global Energy Studies.
Russia, the world's second-largest exporter, produced 9.97 million barrels per day (mbpd) in August, up 0.6 percent from July and up 1.5 percent from August 2008, recovering after last year's first drop in a decade.
Combined with Kazakh oil via the Transneft pipeline network, Russian daily exports for August, including railcars, seaborne shipments and delivery to China, averaged around 4.165 mbpd in August.
In 2008 Russia's average oil output fell about one percent to 9.78 mbpd due to ageing reserves, volatile crude prices and heavy taxation that left producers little cash to invest in production maintenance and new fields.
Production bottomed out in December at 9.66 mbpd, but has risen each month since, coming in flat for May, after Russia raised output to support a struggling economy.
In June Deputy Prime Minister Igor Sechin said Russia would maintain or even increase oil production in the next three years, having stanched last year's decline.
"We have no plans to reduce oil production in the next three years," Sechin said at the time, adding, however, that output could fall if producers failed to make necessary investments.
But even at full steam, Russia is still selling less oil abroad than top exporter Saudi Arabia, whose production was just above 8 mbpd with estimated exports around 6 mbpd in August after cutting its output in line with agreed OPEC curbs.
Lee at CGES foresees for Russia in 2009 "a year-on-year increase of maybe a couple hundred thousand bpd this year at best, with an awful lot of this getting lost in offsetting the western Siberian decline."
In the last year Russian oil companies Rosneft (ROSN.MM), LUKOIL (LKOH.MM) and TNK-BP TNBPI.RTS have tapped new fields at South Khylchuyu, Talakanskoe, Verkhnechonskoe, Uvat and Vankor.
Russia launched its Vankor project in the Arctic north last month with loans from Beijing to build pipelines for delivery into China by 2011, and expected peak production of 510,000 bpd in 2014.
"Vankor say they will do 250,000 bpd next year, but unless you're bringing on very sizeable fields every year, the five percent decline rate in western Siberia will take that out," said Russian oil analyst Oswald Clint of Sanford Bernstein.
Clint said he expects volumes to weaken through the end of 2009 and into 2010.
Investors generally expect oil and gas companies to replace more than 100 percent of annual production as a sign of growth, but analysts said a mineral extraction tax (MET) and export duties, rather than a profit-based tax, hinders needed investment in existing deposits.
"They need to eliminate either the MET or the upstream duty on crude and allow these companies to accumulate not just more cash flow for more maintenance, but also cash to shift over into eastern Siberia and the Arctic Coast," Clint said.
Last month the head of Russia's pipeline monopoly Transneft (TRNF_p.MM) said oil output for 2009 would not be less than in 2008.
"It is quite absolutely clear that the volume of oil output will remain no lower than last year's levels," said Nikolai Tokarev. "There is every reason to say this, people in the oil sector will confirm this."
At the end of July Russia-based analysts at Renaissance Capital said the recent fields to come on stream were long in the making and unlikely to push up the yearly average, but on Thursday they recalculated their assessment.
"Following the industry's recent strong performance, we upgrade our 2009 liquids production growth forecast for Russia to +0.3 percent YoY in tonnes (from -1.1 percent), or +0.6 percent in barrels-per-day terms."
The oil and gas industry provides for about half of Russia's federal budget.
(Additional reporting by Gleb Gorodyankin in Moscow, editing by Sue Thomas)
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