Oh… How times have changed

Article by

Mazhar Al-Shereidah

According to the BBC World News in “Oil trade strengthens US-Russian ties” from the 8th July 2002:

“The first ever direct shipment of Russian oil to the US has reached the port of Houston. The delivery of 2 million barrels of crude oil, which arrived on the super tanker Astro Lupus, was organised by Yukos, Russia’s second largest oil company.

In the 1970s, Moscow used Venezuela as an intermediary for reaching North America’s oil market.

The current deal is the first ever direct sale, and Russian and US officials hope it will not be the last.

Yukos’ chief executive, Mikhail Khodorkovsky, said the shipment was ‘merely experimental’ and that its profitability had yet to be estimated.

The firm sees the shipment as part of the Russia-US ‘energy dialogue’ launched in May when US President George Bush visited Moscow.

Mr Bush and Russian President Vladimir Putin promised to work together to ‘reduce volatility and enhance predictability’ in world oil markets.

Both countries are seen as wanting more Russian oil to enter the US, which has been reliant for imports mostly on countries in the OPEC producers’ cartel.

But Russia, which is not an OPEC member, is believed to have mapped a future in denting the cartel’s market share.

The US, meanwhile, is seen as keen on decreasing its dependence on the Middle East for oil.

Mr Khodorkovsky told BBC News Online that Yukos and its rivals would be able to fill the gap in the market if OPEC cut its production.

A recovery in production in the past three years has elevated Russia to third place in the world oil production league, with exports narrowly behind those of Saudi Arabia.

And production is likely to rise further, by 7-8% this year, after Russia this month ends an output restriction imposed as part of a global effort to boost the crude price.

Yukos itself expects a 20% increase in production this year to 1.4 million barrels per day.

The company, praised by investors for its unusual – by Russian standards – transparency and corporate governance practices, is looking for new markets.

Projects outside Russia range from oil refineries in Germany to a pipeline in China.

Yet, while linked to Europe by pipelines, the continent is not seen by Yukos as its main target for expansion.

The EU is cautious in letting Russia increase exports to Europe, Mr Khodorkovsky says.

Even exporting to the US is not quite as straightforward as it might seem.

According to some estimates, the cost of transportation may be as high as $1.50 per barrel, leaving producers with a profit of $1-$1.50 per barrel at best.

Russia has no deep-water ports, so the oil was transported from Black Sea terminals in small tankers to an Aegean Port where it was loaded onto the Astro Lupus.

It not surprising that Yukos has failed to promise more US shipments in the near future.
The firm’s rivals have dismissed the venture as a ‘public relations action’.”

Why is there so much enthusiasm in the US? After all it’s the politics behind oil that counts.

Share this article