Russia's capitalistic oil industry pitted against OPEC

Wednesday, January 2nd 2002, 12:00 am
By: News On 6

MOSCOW (AP) _ One of Russia's leading oil companies pays for thousands of school children every year to attend a program teaching them pride in their nation, confidence in their own abilities _ and how the market economy works.

Analysts say Yukos Oil's interest in grooming future capitalists reveals more than how the Russian industry has changed its priorities since the Soviet Union's collapse.

It is also a declaration of how Russian oil companies perceive themselves. And OPEC, their main rival, should have seen the changes coming before engaging in a battle of wills with Russia in a bid to prop up the plunging oil price, analysts say.

``OPEC is pitted against a really revived Russia, which has some of the most efficient oil companies in the world,'' said James Fenkner, strategist for the Moscow-based Troika Dialog investment bank. ``On the other side are really quite fat and inefficient OPEC states.''

OPEC, which pumps about 40 percent of the world's oil through primarily state-run industries, has complained that whenever it curtails output to boost crude prices, Russia increases its market share.

OPEC agreed on a 1.5 million-barrel-a-day cut in output that went into effect Tuesday only after independent crude suppliers also lowered production by 500,000 barrels a day.

Russia agreed to a 150,000-barrel cut _ significantly less than OPEC wanted. More importantly, the cartel is not entirely convinced Russia's pledge is genuine.

Russia did not address key OPEC questions such as how long the cuts would last and whether the nation's private oil companies were committed fully, analysts said.

Hugo Erikssen, spokesman for Yukos, said the oil giant ``will ... abide by the Russian government.'' But he added, ``And we intend to increase oil production by a double-digit figure next year.''

Analysts note that a 150,000 barrel-a-day cut during winter is normal for Russia because of difficult drilling conditions in Siberia and the funneling of crude to Russians facing frigid winter temperatures.

Now markets wait nervously while OPEC mulls responses to Russia's pledges, and those of non-OPEC members Mexico and Norway, and threatens a price war.

``It is a political game of bluff and counterbluff,'' said Leo Drollas, deputy director of the London-based Center for Global Energy. ``But at the end of the day, OPEC knows that it has to cut.''

Russia's privatized oil companies gradually have recovered the market share lost after the Soviet Union's collapse, when a lack of investment and political chaos cut production by half.

They have filled a government void by funding after-school and summer programs such as Yukos' New Civilization program for young, would-be business executives.

Unlike the Soviet oil industry, a marginal player in the international marketplace, private companies are profit-driven and aggressively pursuing new export markets. Russia pumps 7.2 million barrels a day and has increased output this year by 520,000 barrels a day.

A recent Troika Dialog study predicted that by the end of the decade, Russia could be ``by far, the dominant global energy supplier,'' destroying ``OPEC's ability to control pricing in isolation.''

Some analysts say this is an ideal position for Russia, which is positioned to entice Western nations fearful of Middle East instability.

But other analysts caution that Russia would be foolish not to fear OPEC's threats of a price war. The government depends heavily on oil revenues to stay afloat.