Russian oil production is showing signs of a modest recovery after nearly a year of monthly declines, and industry officials say Russia could again become an important source of new crude for the supply-starved world market.
No one in the industry expects a surge back to the 10 percent-plus annual growth rates of the last few years. But industry officials and analysts say fears that production increases would stay as low as the 1 percent to 2 percent rates seen in recent months appear exaggerated. The effects of the Kremlin's dismemberment of OAO Yukos -- once Russia's largest producer -- are fading, and other companies are stepping up investment amid persistently high world oil prices.
"There are enough signs . . . to suggest that the nadir of supply growth could be past," says David Fyfe, who tracks world oil supplies at the Paris-based International Energy Agency. He figures that Russian output could grow as much as 300,000 barrels a day over the next year, or about 3 percent. Other analysts say production could rise up to 500,000 barrels a day next year, boosted by expanded output at several Russian companies, as well as more production from relatively new projects on Sakhalin Island in the Pacific.
Output in Russia, the world's second-largest oil exporter after Saudi Arabia, hit a post-Soviet high of 9.53 million barrels a day in September, according to Russian Energy Ministry figures released yesterday. Though up only 0.4 percent from August, it was the fourth straight month-to-month increase after eight months of declines. So far this year, output is up 2.7 percent to an average of 9.38 million barrels a day.
With world oil prices near record levels and spare production capacity at the Organization of Petroleum Exporting Countries stretched thin, even small additions to supply can help ease pressure in the global oil market. Outside OPEC, few countries have much room to increase output significantly -- the IEA estimates non-OPEC production globally will increase only 500,000 barrels a day this year.
"In terms of the swing for the future, Russia remains key," said Fyfe.
Surging Russian output early this decade helped offset rising demand from China. Then steep tax increases and the Kremlin's campaign against Yukos -- which was driven to the brink of bankruptcy by $28 billion in back-tax claims and saw its main unit nationalized last year -- alarmed the industry.
But fears that other oil companies would be targeted like Yukos have proved unfounded. Most of the industry's major players have cleared up back-tax claims without much damage to their bottom lines.
Government officials, meanwhile, are promising tax holidays to stimulate development of new fields.
"It's absolutely obvious that we need to help companies that are working in this direction," said President Vladimir Putin in televised remarks last month. "I think this kind of stimulus should motivate both exploration and production growth."
The Kremlin has come under pressure recently from other members of the Group of Eight industrialized nations to help stabilize world energy markets. Some government officials say tax and other regulatory changes could help push output to 11 million barrels a day by the end of the decade.
So far, the turnaround in production could easily be reversed. Another wave of official pressure on the remains of Yukos could hurt overall Russian production, analysts said. And any indication that the wave of nationalizations in the sector is continuing would likely alarm investors.
The Kremlin's promised tax reforms and new export-pipeline projects also could wind up mired in the official bureaucracy, where some officials worry Russia could be running down its reserves too fast. Government forecasts currently call for annual output increases of just 1 percent to 3 percent through 2008.
But several major Russian oil companies have stepped up investments in new projects. TNK-BP Ltd., BP PLC's Russian joint venture, approved plans in August to invest as much as $270 million in a field in eastern Siberia, for example.
TNK-BP chief executive Robert Dudley, who warned in April that Russia was becoming "more difficult to navigate for well-intentioned investors, Russian and foreign," said last month that "there is less uncertainty today," adding, "we are not holding back on our investment plans."
TNK-BP, top producer OAO Lukoil and OAO Surgutneftegaz are targeting annual production gains ahead of the industry in the next several years. And state oil company OAO Rosneft has plans for a nearly 50 percent increase by the end of the decade.
Exxon Mobil Corp., meanwhile, started production last week on its $10 billion Sakhalin project. Together with another venture in the region, analysts expect the area to add up to 280,000 barrels a day of new production by the end of next year.
As those new supplies come on line, the main drivers of declining output -- Yukos and erstwhile merger partner OAO Sibneft, which is being taken over by state natural gas company OAO Gazprom -- also seem to be stabilizing, analysts said.
"If there's investment in these assets, the decline can be overcome," said Oleg Maximov of Troika Dialog, a Moscow brokerage.
"We won't have growth of 10 percent again, but I think growth of 3 percent to 5 percent a year will be very good for Russia," Lukoil Vice President Leonid Fedun told reporters last week.