While every one has been talking of the growing role of Russia in the energy markets over the last few years, very few bothered to look at the flattening out of the Russian output. This could no more be lost on the analysts, especially taking place at a point when the world was looking for additional production from all around.
Russia performed miracles over the last few years. In 1998, it produced about 6.2 million barrels per day of oil. That figure soared 50 percent to 9.2 million barrels by 2004, behind only to Saudi Arabia’s 10.4 million barrels.
Minus domestic consumption, Russia today exports roughly 6.7 million barrels, about two-thirds of its oil production. In comparison Saudi exports are believed to be about 9 million barrels a day. Russia’s spectacular growth came as world oil demand grew from 74 million barrels per day in 1998 to 82.5 million barrels in 2004, and almost 84 million barrels plus in 2005, with Russia feeding much of the growth in the global demand.
Since 2004, when Putin took over Yukos, the Russian oil giant, Russian production has been virtually flat, growing by less than 3 percent annually, despite its vast oil reserves, estimated at between 50 billion and 120 billion barrels. Russian production growth has thus not been pacing with the growth in global consumption.
The US Energy Information Administration, or EIA, the statistical arm of the US Energy Department, takes an even grimmer view. It said last week that it expected Russian production to grow by just 1.5 percent this year and 1.2 percent next year. It blamed the slow output growth on export taxes that discourage maintenance of existing oil fields and development of new ones.
While raising demand figures, the EIA trimmed its estimate for growth in oil use in 2006 by 20,000 bpd to 1.47 million bpd. The Organization of the Petroleum Exporting Countries, already pumping oil near capacity, needs to pump 29.4 million bpd this year, 400,000 bpd more than expected last month and 300,000 bpd less than members produced in March, the IEA said. In March, world oil supply fell by 125,000 bpd to average 84.5 million bpd, in part because of lower output from Nigeria, Canada and the UK.
As this debate on Russian output continued to dampen the spirits of the energy fraternity, the lingering question about Kuwaiti reserve estimates arose. Citing a drastic miscalculation by oil giant Royal Dutch Shell in 2004 about its crude reserved overestimated by almost 24 percent, the Al-Shall economic consultancy urged Kuwait’s state run oil industry to come clean on the extent of its oil reserves.
Although the Kuwait’s Energy Minister Ahmed Fahd Al-Sabah has been vehemently contradicting the report about Kuwait’s reserves to be 48 billion barrels and not the current officially claimed 97, saying the Petroleum Intelligence Weekly which originally reported this “did not had the full picture.”
However, analysts have been quick to point out to the possibility of Kuwait’s vast Burgan oilfield — second only to the Saudi Ghawar — already in the “past-peak,” phase. Burgan oilfield has been Kuwait’s breadbasket for almost last half a century.
Indeed Kuwait needs to come clean on its reserve status, as any confusion could have ramifications for other producers too. And the ramifications would not be confined to the producers and their overall state of affairs. It would impact the entire globe, as sentiments in the global crude markets could start reacting to the development rather more aggressively than now.
And as the balance stays to continue precarious, China the rising star of the global economy continues to foster a close relationship with oil producers. Chinese President Hu Jintao is set to discuss energy cooperation with Saudi Arabian and Nigerian leaders during his visits to the Middle East and Africa later this month.
Hu will reportedly ‘exchange views with his hosts’ on energy cooperation as well as other trade and economic issue.
And this wooing is indeed two-way. Within just three months’ of the visit of an OPEC delegation led by its former president, the OPEC’s current President Edmund Daukoru, who took over in January this year, was also on a Beijing yatra last week. Incidentally this was only the second by the group’s president in OPEC’s 46 years history.