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The Electronic Telegraph (UK)
January 10, 2003
Russia becomes the biggest oil producer Output beats Saudi Arabia's with 7.97m barrels a day
By Malcolm Moore

Russia overtook Saudi Arabia as the world's largest oil producer in the last three months, as the country beat all expectations for its output growth.

In the last quarter, Russia pumped an average of 7.97m barrels of oil a day, against 7.86m barrels from Saudi Arabia. It is a telling statistic as the Organisation of Petroleum Exporting Countries, the oil cartel, meets on Sunday to discuss how much more oil to release on to the market to combat the high prices caused by the five-week strike in Venezuela. Analysts now believe that Russia could increase its production by two or three million more barrels a day before the state forecast date of 2010.

Russia has been helped this year by Opec cutting back its output, leaving more room on the global market for Russian oil. In addition, as the US tries to become less dependent on oil from the Middle East, Russian companies, such as TNK and Yukos, have begun shipments to American refiners.

All of Russia's major oil companies have pledged to boost production further this year, and German Khan, executive director of TNK, Russia's fourth-largest player, recently said that the country would shortly produce 9m barrels a day. He added that unless there was major foreign investment, the country would then remain at that level, or even stagnate.

Western oil companies have been reluctant to invest in Russia because of delays in introducing product-sharing legislation. The benefits of such legislation are that tax levels remain the same as when the deal is struck, so companies do not have to worry about the vagaries of the Russian government.

Nelli Sharushkina, an analyst at the Energy Intelligence Group in Moscow, said: "One problem is it costs more to produce oil in Russia than in Saudi Arabia. Saudi oil costs between 75c and $2 a barrel, but in Russia, it is expensive to get to and expensive to transport, with costs up to an additional $6 a barrel."

The need for Russia to begin exporting more oil than its current 50pc level is underlined by the co-operation between four of the country's oil companies to build a one million-barrel-a-day oil terminal at the former naval base in Murmansk, with the intention of raising exports to the US dramatically.

Russian oil companies can only achieve around $4 a barrel for crude on the domestic market, compared with the $30 prices being paid abroad. Japan has also made overtures to the Kremlin, saying that its economy will be able to absorb a million barrels of Russian oil a day, and asking for a 2,400-mile trans-Siberian pipeline to be built.

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