Russia eyeing $50 price for sustainability

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    Russia can sustain and even raise oil output if prices stay above $50 per barrel, Russia’s energy minister said.

    Sergei Shmatko said Russia and China were close to finalising a $25 billion loan to Rosneft and oil pipeline firm Transneft and said gas giant Gazprom was ready to raise natural gas supplies to Poland to compensate for lower supplies. “Today, when the price of oil is approaching $50 per barrel, the eyes of oil firms are beginning to light up again,” Shmatko told reporters.  He continues, “If it stays at above these levels, I’m sure they will ramp up production.”

    The global economic downturn has added to concerns over Russia’s ability to resume oil output growth after last year’s first annual decline in a decade. Oil production in Russia, the world’s No. 2 exporter, fell by about 1 percent last year because of ageing reserves and plunging oil prices. The decline is cause for concern in a country highly dependent on oil export revenues for its budget.

    Production rose by over 2 percent in 2007 and at much higher rates in previous years, including the record 11 percent spike in 2003.

    Oil producers say the current oil price, nearly two-thirds below last July’s record of nearly $150 per barrel and the existing tax system mean they cannot invest enough in new fields to compensate for falling output at mature deposits. Shmatko said an oil price of $70-75 per barrel, which the government views as fair, would allow oil companies to return to the investment levels of three to four years ago.

    Commenting on recent media reports Russia’s oil champion, state-controlled Rosneft, may merge with the fourth-largest private oil firm, Surgutneftegas, Shmatko said he believed the merger would make no sense during the economic crisis. “I read about this in the newspapers, but I do not share this idea,” Shmatko said. “Tell me whether there is any point in making major decisions on consolidation amid the market fall and on the back of the economic crisis?”

    Rosneft and oil pipeline monopoly Transneft are in talks with Chinese companies on borrowing $15 billion and $10 billion respectively in return for future oil supplies. The agreement, reached on a preliminary basis in February, is expected to be finalised within a month, Shmatko said.

    He also said Russian gas export monopoly Gazprom could increase gas deliveries to Poland, which is still getting only 78% of contracted gas supplies from Russia after a recent gas row between Russia and Ukraine.

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