Europe: In the shadow of the Bear

06 January 2005

Today, Russia is the second-largest oil producer behind Saudi Arabia, and has become an important alternative supplier to the politically unstable Middle East. Recognising this fact, OPEC too does not take any major decisions without formal consultations with Russia. Analysts predict that over the next decade, production from Russia and the Caspian will rival that of the Middle East.

For the first seven months of this year, Russia has produced about two billion barrels of oil and the year's total should be 3.3 billion barrels. Last year it produced 3.07 billion barrels. In the words of a western analyst, “Russia is big-time. A superpower when it comes to oil and gas.“

With the world price of oil hovering in the $ 40-46 a barrel range, the Russian economy has expanded for the fourth consecutive year, and today Russia is flush with funds. The government has accumulated hard currency and foreign exchange reserves of $ 121 billion as of early December 2004 — thanks mainly to its earnings from oil and gas. According to the deputy head of Russia's Federal Energy agency, Oleg Gordeyev, in the current fiscal Russia will provide for 12.5 per cent of all primary oil and 35 per cent of natural gas deliveries to the world market. So, foreign exchange earnings, for a country trying desperately hard to emerge from the ravages of its recent past, is critically dependent on this sector.

Gordeyev had some more interesting details in store for his audience at the Fourth All-Russian Week of Oil and Gas. He revealed that the EU countries were the main market for the sale of Russian energy products. According to Gordeyev, oil makes up 61 per cent, natural gas 24 per cent, petroleum products 12 per cent and condensate and liquefied gas 3 per cent of the export of Russian energy products to Europe.

The EU has two external sources of hydrocarbons — the OPEC countries and the CIS. While CIS countries account for 53.8 per cent of oil, gas and petroleum product supplies to Europe (Russia, 45.1 per cent, Azerbaijan, 1.4 per cent and Kazakhstan, 7.3 per cent), the OPEC countries account for 46.1 per cent. Russia currently accounts for 84 per cent of all CIS deliveries, and this share, according to Gordeyev, is not likely to decrease.