Russia and Belarus Resolve Oil Dispute
Russian deputy prime minister Igor Sechin speaking with Russian president Dmitry Medvedev. (image: themoscowtimes.com)
The stalemate between Russia and Belarus over Russian oil flowing to Europe through the Druzhba pipeline has come to an end. Reuters carried the news on Wednesday of a new agreement between the neighboring ex-Soviet states, at least temporarily ending a dispute that threatened to disrupt oil supplies to much of Eastern Europe. Belarussian Vice Prime Minister Vladimir Semashko was quoted as saying that Minsk would get 6.3 million tons of duty-free oil in 2010 for use within Belarus, while the rest of the pipeline’s traffic would see an 11 percent rise in duties; that still gives Belarus a discounted rate on the Russian oil that it refines for export to Europe, though less than the 65-percent discount it had previously enjoyed.
The two states will revisit the deal in September to make adjustments based on demand in the oil market. Russia’s deputy prime minister, Igor Sechin, underscored his country’s responsibility to its neighbors, and dialed back Russia’s threat to cut off oil supplies as a bargaining tactic, as it has done in the past: “The documents that were prepared are very balanced and are pretty compromising and are followed by our joint declaration that guarantees uninterrupted supplies. And this is what European customers expect from us.”
Literally Singing the Praises of Gazprom
With the days of socialist marches and propaganda posters fading away, it seems that Russia has found a new way to whip up nationalist pride: an epic anthem extolling the virtues of the national gas company, Gazprom. In a YouTube video that can be described as inspiring, strange, comical, infectious and frightening (or all of the above), Gazprom presents its new theme song in music video form with English subtitles.
Sure, natural gas is an important commodity that’s “giving people warmth and light for office and for home,” but does it deserve three and a half minutes of exultation that borders on religious fanaticism? It’s clear that natural gas is one of the main (if not the most important) factors that maintain Russia’s political relevance in our global society, as then-president Putin showed when he cut off Russia’s gas supply to the Ukraine in the dead of winter last year.
Crucial domestic resource, chief export, invaluable revenue source, political weapon…you can see why the Russians love their gas. However, I doubt average Russians share the unconditional love and reverence for Gazprom that the anthem expresses, or if the song is even known in the country (or anywhere outside the snickering group of 67,950 YouTube viewers), but I do know that they’ll “never ever find a surer friend than Gazprom.”
So pour yourself vodka straight up so we can “drink to all the Russian gas, that it never comes to an end, though it’s so hard to obtain!”
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After Threats, Russia Agrees to Deal on Oil Transit to EU
Conflict between Russia and Ukraine again threatened energy supplies to several EU countries. (image: koxuz.org)
At least this year’s dispute didn’t escalate into January 2009’s crisis when natural gas shipments were halted and residents of 20 Central European countries shivered. No, this time an agreement was reached before Russian threats to cut off supplies to Slovakia, Hungary, and the Czech Republic were carried out. As it was in January of this year, the dispute between Ukraine and Russia centered on the price of oil transit fees that Russia pays to Ukraine. Happily for Central Europe, Russia and Ukraine have resolved their differences, reports AFP.
The cutoff would have come via the Druzhba oil pipeline (ironically, Druzhba means “friendship”) one of the world’s biggest in capacity and length, connecting West Siberian oilfields to refineries in Europe. The pipeline has a capacity of over 2 million barrels per day (bpd); 1.2 million barrels of that went directly to the European Union in 2008, while about 400,000 bpd stayed in Belarus.
Rising Oil Output Protects Against Crude Price Spikes
A steady flow of crude is a buffer against sudden changes to demand or access. (image: upstreamonline.com)
Last week, militants threatened oil supplies in Iraq and Nigeria, two of the world’s most beleaguered crude producers. Typically, the prospect of conflict in either country, no matter how fleeting, would be enough to trouble the market and create a sizeable spike in global oil prices. This time around, however, crude prices rose only 70 cents, to end the week at a modest $73.36 a barrel, a sign that the oil sector’s growing capacity to shrug off sudden losses in production will, at least for the moment, keep crude prices stable.
According to an article published on Sunday by the Wall Street Journal, several major oil producers have improved production capacity in recent months, ensuring a steady supply of crude despite the occasional disruption. Earlier this year, Saudi Arabia said it increased its production capacity to a record 12.5 million barrels a day, while Qatar will soon ramp up the capacity of its offshore Al Shaheen oil field to 500,000 barrels a day (about three times the current capacity of Iraq).
Oil Supply Could Lower Oil Prices in Next Decade
WSJ logo. (image: mclaughlinquinn.com)
In a video on the Wall Street Journal digital version, columnist Liam Denning explains that the next decade will not belong to the oil bulls but, rather, the oil bears. The big shift in the market, according to Denning, will be in supply.
The story of oil in the past decade is linked to the intense demand from emerging markets like Brazil, India, Russia and China. Demand from the BRICS, as this collection of countries has been dubbed, in conjunction with political unrest—ranging from the war in Iraq to the national turmoil that besieged Nigeria—worked to, as Denning put it, “keep barrels off the market.”
But the days of high demand and low supply are over, he says. Looking ahead, the so-called BRINK countries—Brazil (now the 15th largest producer of oil in the world), Russia, Iraq, Nigeria and Kazakhstan—could increase oil production earlier than expected and this could bring down the price of oil as more crude flows into the market.
Rosneft, Russian Oil Co., Plans Increased 2010 Oil Production
Rosneft chief Sergei Bogdanchikov. (image: kommersant.com)
According to Reuters, the president of Russia’s largest producer of crude oil told reporters on Tuesday that the company’s oil production is expected to increase by four to five percent in 2010 from an expected 112 million tons this year. Rosneft chief Sergei Bogdanchikov also said that, “In planning our production, we are looking at efficiency, but we have to make sure that there is no decrease in Russian oil production.”
The ramp-up adheres to the pattern of Russian oil companies increasing production at OPEC’s expense, or at least irritation. As Kyle Hammond wrote on October 28, OPEC members do not appreciate Russia’s increase in production, because it undermines the organization’s efforts to increase and stabilize the price of oil by curbing production.
Russia is the world’s largest country (by area), and is the second largest producer of oil after Saudi Arabia. Russia is also the world’s second-largest exporter of oil, shipping approximately 4.3 million barrels a day (mb/d) of crude and another 1.8 mb/d of oil products. Both exports and production have increased by about 40 percent since 1999. Kristy Kershaw painted an accurate picture of the complex OPEC-Russia relationship when she wrote on Sept. 13, “As the world’s biggest non-OPEC oil producer, Russia is in a unique position to undermine the organization’s highly coordinated production efforts by producing and exporting more amidst OPEC cutbacks.”
