[A-List] US-Russia oil ties

["Michael Keaney" <michael.keaney@xxxxxx>]

Russia oils new ties with US
By Sergei Blagov
Asia Times, October 8 2002

MOSCOW - Russian companies are attempting, with government backing, to take
over from Saudi Arabia as the main oil provider to the US. The companies are
also seeking American capital for investment in Russian oil.

US Commerce Secretary Donald Evans spoke of Russia's "important strategic
role in diversity of the supply of world oil" at the energy summit between
Russia and the US in Houston last week. Russian Energy Minister Igor Yusufov
signaled Russian readiness to supply oil, but said that the Russian oil
industry needed an investment of about US$1 billion a year. US investment
and technology could help deliver Russian oil to America's West Coast, he
said.

Companies have moved in line with political agreements. Russia's state-owned
Rosneft oil company and the US firm Marathon Oil Corporation announced a
decision October 1 to participate jointly in Urals North American Marketing
(UNAM), a project to supply oil from the Urals region in Russia to North
America.

UNAM would use the existing transport and marketing infrastructure, the two
companies announced. Oil supply under this project is due to begin in the
third quarter of next year.

Russian executives are reported to have told the Houston summit that Russia
could export as much as a million barrels a day to the US within five years.
But Russia lacked pipelines and suitable port facilities, they said.

The US received its first direct shipment of Russian oil in July. YUKOS, the
second largest oil company in Russia, began shipment on an experimental
basis in the face of fears that high transportation costs could mean a loss
of up to 50 cents a barrel.

YUKOS spokesman Alexander Shadrin announced in Moscow that YUKOS had sent
three oil tankers to the US so far, and that these supplies had been
profitable. YUKOS planned to ship 5 million tonnes of crude to the US next
year, Shadrin said.

LUKoil, Russia's biggest oil producer, already owns the Getty gas station
chain on the East Coast of the US. The company plans to build a new sea
terminal in Murmansk for shipping oil across the Arctic Sea to the US from
its Timan-Pechora oilfield in northern Russia. Direct oil shipment to the US
remains a challenging task given the distance and the lack of the necessary
infrastructure in Russia.

The US market is "very attractive and prestigious" despite the high cost of
transportation, says Mikhail Odintsov, head of the natural monopolies
committee of the Federation Council, the upper house of Russian parliament.
Russia should also target East Asian markets like China and Japan because it
is much cheaper to supply oil to them, he says.

But there are some dissenting voices in Moscow. Yevgeny Ischenko, deputy of
the state Duma, the lower house of the Russian parliament, has urged caution
in selling oil to the US. The two countries have different oil interests, he
says; the US wants to divide oil producers, particularly members of OPEC
(Organization of Petroleum Exporting Countries) and push prices down, while
Russia should band together with other producers to create a "hydrocarbon
international", he says.

OPEC has pressed Russia to keep exports to present levels. OPEC announced in
November last year that it would withdraw 1.5 million barrels per day (bpd)
from the market this January to hold prices, and asked the other major
exporting countries Russia, Norway, Mexico and Oman to come up with another
500,000 bpd cut. Russia announced a 150,000 bpd cut, but only after OPEC
threatened Russian producers with a price war. Russian oil has a position in
the market now only because OPEC cut supplies, oil analysts say.

Russia exports 100 million tonnes of oil a year, and oil earns Russia half
its hard currency. But it has been reluctant to join OPEC because it wants
to build independent relations with major buyers. Now OPEC faces the
prospect of a major producer acting on the side of consumers. Officials at
the Kremlin say growing energy exports from Russia are changing the status
quo in the world energy market, and the target is the supply from Saudi
Arabia.