Kremlin Mulls State Oil Reserve
18.02.2009 (13:58) | RBC
The government can reserve or buy from Russian companies their excessive oil reserves, estimated at about 16 million tonnes, Deputy Prime Minister Igor Sechin said yesterday as he attended the kick-off ceremony for two Uvatsky project fields, owned by TNK-BP.Yet oil companies are cautious about the government’s initiative, while analysts say a lot will depend on the terms of the acquisition. They say the project could cost the state budget up to $2 billion, and the discussion might be dragged out because of the Finance Ministry’s objections.
Many oil companies have to reduce their oil exports now, and the government is ready to buy excessive oil from them, Deputy Prime Minister Igor Sechin told reporters yesterday. He estimated the potential reserve at approximately 16 million tonnes, depending on the condition of the market. The main issue is financing, Sechin explained, noting that both budget and private resources could be involved.
“We are preparing for the OPEC session in March; we are examining the possibility of the oil reserve. We can reserve both oil and oil products,” he explained. To recap, Sechin warned at OPEC’s meeting in December that oil exports could drop 320,000 barrels a day, or 16 million tonnes of oil a year.
Rosneft’s Nikolai Manvelov already told RBC Daily that his company would be interested in the discussion. Lukoil officials said they could sell oil to anyone, though preference will be given to the government.
The idea to create oil reserves – which would give the Russian government more weight in oil price matters - was first voiced in the autumn. But officials cannot seem to find common ground. Igor Sechin and the Energy Ministry proposed creating a reserve of oil production, which would make Russia more flexible both in raising and cutting its oil output.
Yet the Russian Federal Subsoil Use Agency (Rosnedra) came out against the idea, saying it would interfere with oil production technology, which would be absolutely unacceptable, given Russia’s weather conditions. The agency’s chief Anatoly Ledovskikh instead proposed building the reserve by filling oil storage facilities, including the construction of new facilities.
Government officials have not yet arrived at a unanimous conclusion, as Prime Minister Vladimir Putin admitted at a meeting with oil producers last week. The initiative remains an abstract idea, and the details of the plan require thorough consideration. Finally, the government simply lacks enough oil storage facilities, argued Vitaly Kryukov, an analyst at IFD Kapital. It would cost more than $2 billion to buy oil from producers at current domestic prices, he calculated.
Dmitry Abzalov, an analyst at the Center for Current Politics, says the government could use the facilities of oil companies themselves for storage. Another question is whether or not oil companies will be willing to sell their oil to the government. “This will depend on the terms of the deal, especially the price of oil,” he said. In addition, the idea must be backed by all interested government institutions, with the Finance Ministry as the strongest opponent.
Meanwhile, the oil market is preparing for the next OPEC meeting, which will be held in Vienna on March 15. Russia will take part, too, if it gets the invitation, Sechin confirmed yesterday. The cartel is expected to further cut its oil production quota.
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