October 22, 2008 / 8:43 AM / in 9 years

Russia tells OPEC eyes swing oil producer role

MOSCOW (Reuters) - Russia could become a swing producer to influence global prices, the country’s top energy official said on Wednesday as OPEC’s Secretary General met with a Russian president for the first time.

<p>Russia's President Dmitry Medvedev (R) and Deputy Prime Minister Igor Sechin (L) attend a state council session in Ivanovo, some 300 km (180 miles) east of Moscow, June 20, 2008. REUTERS/Denis Sinyakov</p>

The resurrection of a decade-old idea of a big oil reserve comes as another sign of Russia’s growing ties with OPEC, which has unnerved global consumers already worried by talks between Russia, Iran and Qatar to create an OPEC-style gas group.

“The Ministry of Energy is considering creating an oil production reserve, which would allow it to work more efficiently with prices on the market,” said Russian Deputy Prime Minister Igor Sechin, who oversees the energy sector.

Asked how big the reserve should be, Sechin told reporters: “Enough to reach efficient pricing parameters.”

Russia is the biggest oil producer outside OPEC and the world’s second-largest exporter after Saudi Arabia.

OPEC Secretary General Abdullah al-Badri, who arrived in Moscow on Tuesday for a two-day trip, met with Russian President Dmitry Medvedev to discuss the exchange of market data.

“The reason (for this meeting) is absolutely obvious,” state television channel Vesti 24 showed Medvedev as saying after the two met just outside of Moscow on Wednesday.

“Russia is also a major producer and exporter of oil and is interested in maintaining stable, predictable prices.”

Badri said he liked the reserve idea. “Russian reserves can help global oil shortages ... This idea is good. It is a technical matter. We will have to discuss it,” he said before meeting the Russian president.

The Russian economy grew for 10 straight years on the back of high oil prices.

But as prices have halved in the past months Russia’s budget is at risk as it is balanced at $75 per barrel for 2008 and $95 for next year compared to around $60 for Russian crude now.

Russian companies badly need high prices to refinance their heavy debts and maintain ambitious capital projects.

Badri told journalists he was not interested in asking Russia for a cut in production.

Some top OPEC officials have this week called on Russia and other non-member states to join OPEC in cutting production. The organization will hold an extraordinary meeting on Friday and is widely expected to reduce its deliveries to global markets.

Moscow agreed to reduce exports several times earlier this decade in tandem with OPEC, but analysts said the pledge never materialized as private companies raised shipments instead.

Russia has long toyed with the idea of an oil reserve, which could allow it to become a swing producer. But the expensive and logistically difficult plan was never implemented as the government and private companies failed to reach a compromise.

If set up it will differ from emergency reserves created in the 1970s in some big consuming nations, such as the United States, which are used to soothe supply problems rather than influence prices.

The current oil production scheme in Russia does not allow the country to change its flows significantly as any well shut down in Siberia usually leads to its costly repair.

INVESTMENT CONCERNS

The head of the International Energy Agency (IEA), attending the same industry conference as Badri, said he was worried by Russia’s production outlook as the country heads this year for its first annual output decline in a decade.

“We see worrying signs in some producing countries, including Russia, in the ability to invest enough to meet demand,” said Executive Director Nobuo Tanaka of the IEA, adviser to 28 industrialized countries.

Oil production in Russia has been down by around one percent since the start of this year, leading the government to make exploration a top priority for the strategic oil sector.

“We see Russian supply growth slowing, with all projects declining in production over the next decade. Further government incentives would be welcome to increase production,” he said.

Tanaka also said growing demand in robust emerging markets, such as China, could lead to a global squeeze on oil supply.

“In the medium to long term, say by 2013, a supply crunch may happen... If we stop investing now, the problem will be more acute,” he told reporters.

The IEA hoped OPEC would not cut output at Friday meeting, he added. “We want to see more production, we want a cushion.”

Russian oil firms have called on the government to ease taxes and slash export duties in November, one month earlier than planned, because of a steep price decline this month.

Sechin said the idea was being discussed but no decision had yet been taken.

Writing by Dmitry Zhdannikov and Amie Ferris-Rotman; editing by James Jukwey

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