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Archive for Saturday, May 25, 2002

U.S. may look to Russian to reduce reliance on Mideast oil

May 25, 2002

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— In the Soviet military years ago, Leonid Fedoun worked with missiles aimed at the United States. Now an executive at one of Russia's biggest companies, he's talking about flooding America with oil.

As President Bush and Russian President Vladimir Putin met Friday, Fedoun and others say a powerful impetus for the countries' future relations is this: The United States is seeking new oil suppliers to reduce its dependence on Arab states and Russia is now the world's second-largest net exporter, after Saudi Arabia.

"We think Russia would be able to ship up to 1 million barrels a day," Fedoun said at the headquarters of his company, Lukoil, in central Moscow. "We are prepared to satisfy the demand, if it occurs," he added. "Technically it is possible. Economically, it's advantageous, both for Russia and America."

Russia now sells to the United States about 90,000 barrels of oil daily, less than 1 percent of U.S. needs. Fedoun concedes that, at current prices, there is no infrastructure efficient enough to ship the amount about 10 percent of U.S. imports that Fedoun dreams of supplying.

But analysts say further investment in Russia could boost its production and reduce its transport costs. That could help turn Russia into the United States' long-sought alternative to the Middle East.

Officials have not talked about that prospect publicly in such grand terms. But U.S.-Russian ties have strengthened in the eight months since Putin embraced the Bush administration's war on terror a change that could improve the economic climate.

"The energy sector is perhaps the most promising area for expanded trade and investment in the short-term. ... I think that there will be some reflection at the summit of the potential for a big expansion in U.S.-Russian collaboration in the energy field," U.S. Ambassador to Russia Alexander Vershbow said in a recent talk hosted by a Russian newspaper. He noted that the two largest U.S. investments involving Russia have been on energy projects.

The investment is important partly because Russia must explore for new oil as production declines in some of its existing fields. Heavy spending also will be needed to build pipelines to the few deep-water ports that can accommodate tankers large enough to efficiently ship to the United States, according to analysts. Fedoun estimated that it would cost $1.8 billion to extend Russia's pipeline network more than 900 miles to reach the northern port of Murmansk.

Russia has the world's eighth-largest reserves, according to the U.S. Energy Information Administration. It exported a little under 5 million barrels a day last year, nearly 1 1/2 million barrels a day more than the third-biggest exporter, Norway.

While Russian production fell in the early post-Soviet years, it has largely bounced back since 1998. Within three or four years, output could rise by a million barrels a day, said Julian Lee, a senior analyst at the Centre for Global Energy Studies in London.

As turmoil in the Middle East has underscored the danger of being energy-dependent on a volatile region, it is striking that analysts see Russia as a possible solution to the West's oil problem. Ten years ago, after the fall of the Soviet Union and less than four years ago, when the ruble collapsed the country was viewed by investors as unpredictable. But the economic climate has stabilized significantly since Putin was elected two years ago, and economic ties are now expected to form a significant part of the agenda for Bush and Putin. "Compared to some of the other current suppliers, Russia looks stable," said Sarah Carey, a U.S. attorney who serves on the board of Yukos, another major Russian oil company.

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