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Russia: Prospects Brighten For Becoming Key U.S. Oil Supplier

Hopes for energy cooperation with Russia have been rising following a meeting of ministers from the Group of Eight industrialized nations in the United States. Experts say Russia could offer an alternative source to the Organization of Petroleum Exporting Countries, but the prospect remains uncertain.

Boston, 8 May 2002 (RFE/RL) -- Analysts are becoming optimistic about the prospect that Russia could become a key oil supplier to the United States, helping to reduce its reliance on the volatile Middle East.

The outlook for a link between the world's biggest oil consumer and the second-largest producer seemed to brighten last week with a meeting in Detroit.

The forum of energy ministers from the Group of Eight industrialized nations gave Moscow a chance to repeat its message that Russia is prepared to play a major role in world energy affairs.

Energy Minister Igor Yusufov declared "Russia's readiness to become the guarantor of stability at the world market of energy resources," according to the official news agency RIA-Novosti. Russia reportedly offered to serve as a stabilizing supplier within a group of producing and consuming countries, including Russia, the United States, Canada, and Great Britain.

RIA-Novosti quoted sources as saying Russia's role "could be that of a guarantor of deliveries of energy materials to all the major economic systems of the world in case of crises."

The offer was underscored by Mikhail Khodorkovskii, the chairman of Russia's second-largest oil company Yukos, who said the country could boost its oil output from 7 million to 9 million barrels per day.

Yusufov made the same points during a meeting with U.S. Vice President Dick Cheney last week. On 7 May, RIA-Novosti reported that the two men discussed possible imports of Russian fuel for the U.S. Strategic Petroleum Reserve.

After months of Russian proposals, Western analysts have started to respond positively to the approach.

Leon Aron, director of Russian studies at the American Enterprise Institute in Washington, wrote last week in "The New York Times": "Americans are not in the habit of looking to Russia for help in enhancing our security. But Russia has been transformed in the last 10 years, and Vladimir Putin's solidarity with the United States since 11 September has sealed that transformation."

Aron noted that Russia had promised the Organization of Petroleum Exporting Countries (OPEC) last December that it would support oil prices by cutting exports by a modest 150,000 barrels per day. He said Russia then raised its production, "showing that it remains fully independent of OPEC."

In another commentary last week, the industry newsletter Petroleum Argus wrote: "Much is made of Russia's potential as an OPEC alternative. But the rhetoric could be about to turn into reality."

Both analyses cited obstacles that stand in the way. Among them is the distance of Russia's Siberian oil fields from the U.S. market. Even so, Petroleum Argus argued that Russia is planning new export routes that could bring its resources closer.

The first is the Druzhba-Adria pipeline, which could pump Russian oil west to the Adriatic through Croatia. The second is a far more ambitious eastward line from Angarsk to Nakhodka, a project that could supply the western United States from Russia's Far East.

One measure of the new hope for Russia's plan may be that it is being taken seriously, despite the fact that the eastern line would stretch 3,800 kilometers and cost $5 billion, according to the investment bank Troika Dialog. Such large numbers would have been greeted with skepticism only a year ago.

Russia's improved ties to the United States and its oil output have both encouraged the new outlook. In the first four months of 2002, Russia's oil production rose 8.8 percent from a year earlier, the Interfax news agency said this week.

But there are also reasons to be cautious about prospects for rapid change, or the notion that Russia will supplant Saudi Arabia as the traditional "swing producer" with the spare oil capacity to assure price stability and steady supplies.

Russian producers like Yukos have argued for months that they cannot simply turn their frozen Siberian oil fields on and off to suit OPEC. By the same token, they may be unable to match Saudi Arabia's flexibility to keep prices stable for long.

Any replacement in the U.S. market is likely to be slow. While Saudi Arabia accounted for 18 percent of U.S. crude imports last year, Russia barely registered as a source, according to the U.S. Department of Energy. OPEC countries supplied 51 percent of U.S. oil imports last year.

While Russia has offered energy cooperation with the United States, it has promised similar cooperation with the European Union. It also continues to say that it is cooperating with OPEC, as well as individual members like Iraq and Iran. The extent of cooperation in each case is unclear. But if Russia tries to be all things to all countries, it may not have enough resources and cooperation to go around.

Russia has made clear in the past week that it also has demands that may go with its energy supplies. On 7 May, RIA-Novosoti reported that Yusufov told the energy ministers that in return for sending more energy to the EU, Russia expects "an adequate reply with investment, technologies and managerial experience, as well as unimpeded transit of energy resources across Europe."

Yusufov also "warned European countries" that the opening of their energy markets should not lead them to revise long-term contracts with Russia or keep them from concluding new ones. The concern about EU energy policy has been a favorite theme of Russia's gas monopoly Gazprom, but the strong language suggests that Moscow's energy cooperation could have a high policy price.