MOSCOW: The Kremlin’s crackdown on oil giant Yukos could jeopardise Russia’s ability to sustain a production surge that the United States hoped could ease western reliance on Middle East oil supply, analysts said on Friday.
Yukos, which produces a quarter of Russia’s oil, faces major hurdles in daily operations and risks losing fields after prosecutors on Thursday froze a 44-percent stake in the firm owned by detained chief executive Mikhail Khodorkovsky and his allies, analysts said.
If Moscow moves to rein in other privatised oil giants, a likely slowdown in foreign investment will dent US hopes of fostering Russian oil as an insurance policy against supply from the volatile Middle East.
“Foreign companies will go back into wait-and-see mode,” said Ian Woollen, senior analyst at Wood Mackenzie in Edinburgh, Scotland. “If Russia can’t get the level of capital expenditure up then we’ll be looking at lower production growth. It just depends how long it lasts.”
Russia’s oil output is booming for the fifth straight year as private majors, enticed by high oil prices, invest billions of dollars in Siberian fields. Output rose to 8.73 million barrels per day (bpd) in September — challenging Saudi Arabia as the world’s leading producer — against six million bpd in the late 1990s.
Yukos is the driving force behind the growth of the last five years, its production rising from 800,000 bpd to 1.6 million this year. In September, it acquired smaller rival Sibneft to become the world’s fourth largest private oil producer with output of 2.35 million bpd.
Yukos say it is ‘business as usual’ with US top managers heading operations.
Analysts counter that with two key shareholders in jail and two others in Israel, shares impounded, dozens of computers confiscated and planned syndicated loans in trouble, there must be repercussions.
“We find the suggestion that Khodorkovsky’s arrest is largely irrelevant, as Yukos continues operations and retains its assets, at best naive,” said Steven Dashevsky from Aton.
Analysts said they had underestimated the Kremlin’s resolve to negotiate big deals with the big business. Analysts said the attack on Yukos was orchestrated by the Kremlin to punish Khodorkovsky for meddling in politics after he backed President Vladimir Putin’s liberal opponents ahead of parliamentary and presidential elections.
“In the current situation, the Kremlin will dictate terms, and Yukos is not in a position to disagree,” said MDM Bank.
Prolonged turmoil would threaten estimates that Russian production will rise again to nearly nine million bpd next year and between 10 and 12 million bpd by the end of the decade.
Russia’s top energy official, deputy Prime Minister Viktor Khristenko said in October oil output in Russia, the world’s second largest oil exporter, was unlikely to go much above nine million bpd for some time.
“It may well turn out that the government forecast of output reaching its ceiling of nine million barrels per day was right,” said Valery Nesterov from Troika Dialog brokerage.
This will be music to the ears of the OPEC cartel, which has already sliced production once this year on fears that rising Russian supply could foster an oil glut and has signalled that it may need to cut again.
In the mid-1980s, the Soviet Union was the world’s top oil nation ahead of Saudi Arabia, producing 12 million bpd. But after the collapse of the communist rule, production shrank as no investment was made before privatisation.
“The government probably does not want Russian output to rise much further as it is concerned about depletion of resources,” Nesterov said.
Putin signalled that privatisation of Russia’s natural gas sector was not under threat, and that state monopoly Gazprom would press on with plans to increase exports four percent next year.
Russian oil output growth plans depend on developing a major export pipeline to ease transport bottlenecks. Yukos was the main supporter of the two biggest projects — to China and to the Arctic port of Murmansk, planned as a gateway for the US market.
“The need for this Murmansk pipeline is yet to be demonstrated. There will need to be a significant investment in production for a pipeline to be necessary. If not, the amount of Russian oil heading to the United States will remain relatively small,” said Wood Mackenzie’s Woollen.
Analysts also said one of the most dangerous things for future output growth was a signal from Russia’s Natural Resources Ministry that it could withdraw Siberian oil licences due to excessive extraction, contradicting the contract terms.
“In extremis, the licence investigations hitting YukosSibneft could spread across the industry, and BP ‘s oligarch partners could themselves come under government pressures,” said JJ Traynor at Deutsche Bank.—Reuters