Accessibility links

Breaking News

Russia: Oil Companies To Seek Closer Ties To U.S.

Russia is promoting energy cooperation with the United States following an agreement at a Moscow summit meeting in May. A presentation next month on developing the port of Murmansk into an export facility suggests that Russian oil companies are planning a commitment that could last for years.

Boston, 17 September 2002 (RFE/RL) -- Russian oil companies will seek closer ties with the United States next month when officials from giant LUKoil present plans for developing the arctic port of Murmansk.

Last week, LUKoil said its vice president, Leonid Fedun, will put forward a plan for boosting Russian exports to the U.S. market at a two-day energy summit starting 1 October. The meeting in the U.S. oil center of Houston follows an energy cooperation accord with President Vladimir Putin during President George W. Bush's visit to Moscow on 24 May.

During the Moscow summit some newspapers quoted skeptical analysts as saying that the energy alliance did not include an agenda for concrete action. But since then, Russian companies have shown they are eager to turn the spirit of cooperation into substantive steps.

Since July, second-ranked Yukos has started monthly tanker shipments of oil to the United States, despite analysts' initial concerns that the distance would be too long and the price would be too high.

LUKoil has also been promoting its plan for a new U.S. oil route from the ice-free port of Murmansk, which could serve as a future link with Russia's petroleum investments in the Timan-Pechora region of northern Siberia.

Last week, LUKoil claimed it had won support for the project from other Russian oil majors. Company spokesman Dmitrii Dolgov said, "The idea of staging a presentation was agreed by a working group which includes LUKoil, Yukos, Tyumen Oil Company and Sibneft," Reuters reported.

LUKoil is calling for a terminal to export up to 1 million barrels of oil per day from a 1,500-kilometer pipeline, costing an estimated $1.5 billion. Many of the details have yet to be settled.

Although Yukos has suggested it will support the project, other companies indicated that reports of their commitment may be premature. Last week, the "Petroleum Argus" newsletter said both Tyumen and Sibneft have held only preliminary talks. The project may also prove difficult without the support of the Russian state pipeline company Transneft, which has questioned the investment in a line dedicated to serving U.S. demand.

Actual exports from Murmansk also seem very much in the future. The project may take place no sooner than 2005 after a feasibility study is finished in mid-2003.

But the project's futuristic nature may be its most notable feature. The drive by LUKoil and Yukos to build a base for exports to the United States seems to signify that the trade is not intended as a fleeting phenomenon.

Tanker shipments by Yukos from Russia's Black Sea port of Novorossiisk to Houston could be quickly curtailed if they are found too costly or too difficult. Transneft's current effort that ships oil through Croatia to the Mediterranean through the Adria pipeline system could also serve closer customers in Europe as well as the United States.

But a longer-term project at Murmansk seems to suggest a major commitment to the U.S. market, particularly if it includes investment by U.S. companies. That message may be the point of LUKoil's presentation in Houston next month.

The timing comes as concern is rising over the security of Middle East oil supplies and also as Russian oil exports are showing astonishing growth.

In the first seven months of this year, Russia's exports of crude soared 24 percent from a year earlier, Reuters reported last week. Under a Russian government plan, the country will raise its oil exports by over 20 percent in the next three years to 4.3 million barrels per day.

LUKoil's presentation may also take on importance at a time when the United States is considering military action against Iraq. Russia's willingness to help assure U.S. oil supplies, not only in the near term but in future years, may be seen as a significant signal of Moscow's support.

It may also be a sign that Russia is ready, as it has said, to play a major role in stabilizing the world market at a time when the Organization of Petroleum Exporting Countries is considering new production levels this week during a meeting in Osaka, Japan.

Russia seems certain to seek reciprocity from the United States for its energy cooperation, both in economic and political terms. For the Murmansk project, the appeal to the U.S. audience is likely to be for investment in specific export facilities. But in the long term, energy exports could prove to be a force in forging closer coordination on a broad range of issues from OPEC to the Middle East.