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U.S./Russia: Officials Hail Energy Partnership

  • Michael Lelyveld

U.S. and Russian officials hailed the promise of an energy partnership at a commercial summit meeting in the oil center of Houston, Texas, this week as they announced the first imports for the U.S. Strategic Petroleum Reserve. But the conference also highlighted Russia's need for financing and long-standing problems with approving laws for investment in its oil fields.

Boston, 4 October 2002 (RFE/RL) -- A mix of new hope and old concerns emerged this week from the U.S.-Russia Commercial Energy Summit in the American oil capital of Houston, Texas.

The two-day meeting brought about 100 industry leaders and officials together to further the energy dialogue declared by Presidents George W. Bush and Vladimir Putin at their Moscow summit in May.

Since then, the talk has turned into steps toward cooperation with Russia's offers to ship oil directly to the U.S. market and to make up for output limits set by the Organization for Petroleum Exporting Countries.

Both U.S. Vice President Richard Cheney and Russian Prime Minister Mikhail Kasyanov sent messages to the conference, voicing hope that it would open new investment opportunities.

Russian Economic Development and Trade Minister German Gref told the ITAR-TASS news agency, "It is an unprecedented meeting which is attended by all American and Russian major companies so as to discuss potential joint projects within two days."

While it did not create any deals, it did produce several announcements.

The Export-Import Bank of the United States signed a memorandum of understanding to underwrite $100 million in sales of U.S. equipment and services to Russia's LUKoil, Yukos, and Sibneft oil companies, the Prime-TASS news agency said.

U.S.-based Marathon Oil Corporation also agreed with Russia's state-owned oil company Rosneft to create a venture that will transport and market Urals crude in North America by the third quarter of next year. The arrangement may be the first of its kind.

Moncrief Oil Company, another U.S. firm, said it had been encouraged to renew stalled negotiations with Russia's Gazprom for developing a gas field containing 15 trillion cubic feet (425 billion cubic meters) of reserves, the Fort Worth Star-Telegram said.

U.S. Commerce Secretary Donald Evans also said that he would take a delegation of energy executives to Russia next year in a bid for more partnerships.

But perhaps the most promising result of the conference came outside the meeting with the visit of a Russian delegation led by Energy Minister Igor Yusufov to a storage facility of the U.S. Strategic Petroleum Reserve.

On a tour of the secure site with U.S. Energy Secretary Spencer Abraham, Yusufov said, "This is an unprecedented step, a step of trust the United States has in Russia."

Officials said the emergency stockpile will start taking Russian crude for the first time under an arrangement between Russia's Tyumen Oil Company and U.S.-based Koch Supply and Trading. The oil arriving in Houston next week follows three tanker loads of imports from Yukos since the energy dialogue began.

Vice President Cheney voiced support for using Russian oil for the U.S. reserve several months ago during a visit by Russian industry chiefs. The plan seems to allow for the long distances and uncertain market for the new trade in the United States.

The match could be well suited. The U.S. reserve now holds 586 million barrels of oil, with plans to add 13 million barrels by the end of the year, according to Department of Energy figures. President Bush has ordered an increase to the pool's capacity of 700 million barrels. The new partnership with Russia could play an important role.

Yusufov also said Russia may build its own reserve in the next two to three years, the Reuters news agency reported. But unlike the U.S. stockpile, the purpose would be to keep oil prices in a range lower than that sought by the OPEC oil cartel.

Yusufov said, "Russia is such a large oil producer, we're creating our petroleum reserve not for our own needs, but first of all to help our partners around the world...helping to meet the needs of the United States." The plan could also help to keep Russian output high at times of sagging world demand.

It remains to be seen how such stocks would be managed or what effect they would have. Other consuming countries like China and the Southeast Asian nations are also planning to create reserves, potentially tightening the oil market at the same time. In the first nine months of this year, Russian oil production rose 8.6 percent, Prime-TASS reported this week.

So far, actual U.S. imports of Russian oil this year have reached about 18 million barrels, according to "The Wall Street Journal." The amount is equal to just one day of U.S. demand.

While Russia's potential is impressive, so are the problems, as some presentations made clear. Yusufov said the energy industry needs $1 billion annually in the next few years and as much as $50 billion by 2010. Russian officials appealed for investment in new port facilities at Murmansk in the Arctic region and Nakhodka in the Far East. But many previous U.S. attempts at investment have stalled.

U.S. oil executives used the forum to make a perennial plea for the passage of production sharing agreements. The legislation, known as PSAs, provide the legal framework for protecting oil deals from changes in Russian tax laws and other investment-chilling risks.

Archie Dunham, the chairman of the U.S.-based ConocoPhillips oil company said, "Our experience in Russia over the past 10 years convinced us of the need for PSAs." The "Houston Chronicle" quoted Dunham as saying, "ConocoPhillips is eager to do more in Russia as soon as the administrative and commercial basis for our cooperation can be strengthened."

The Russian State Duma is considering legislation to speed approval of PSAs, but lawmakers have routinely delayed individual oil investments for years.

Earlier efforts at sweeping U.S.-Russian energy partnerships have also fallen flat. In the early 1990s, an Export-Import Bank plan for over $2 billion in financing to rehabilitate older Russian oil wells was billed as perhaps the largest U.S. aid program for the country. But investors ran into endless bureaucratic barriers and many projects languished, leaving the credits unused.

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