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Mon, Jun 07, 2004 - Page 12 News List

West looks to Russia for oil

RISING PRICES With vast reserves of untapped oil, and the right level of investment, President Vladimir Putin may be the one who comes riding to the rescue

THE OBSERVER , LONDON

Could Russian President Vladimir Putin bail us out? He might take some grim satisfaction from the mounting oil crisis. High prices have underpinned Russia's booming economy in recent years: oil and gas represented 25 percent of the economy last year. The last thing the Kremlin wants is cheap fuel.

Well, not too cheap, anyway. If a genuine oil shortage took hold, few would suffer more than the tens of millions of Russians shivering in some of the coldest places on Earth. And there quickly comes a point where a crisis-struck, cash-strapped Western economy threatens Russia with a recession of its own.

Besides, Putin has always counted himself an enthusiastic ally of US President George W. Bush's "war on terror," and could be expected to show solidarity with the US against al-Qaeda -- particularly if it once again gave him the diplomatic cover he needed to pulverize Chechen separatists. The real question is not whether Russia would want to ride to the rescue of the West, but whether it is able to.

That entirely depends on the size of the problem in the Middle East, of course, and how apocalyptic we are being in our theorizing.

But the signs are that Russia has strong capacity. Most analysts now believe its oil reserves are probably much bigger than previously thought.

The BP Statistical Review says Russia has 60 billion barrels of proven oil reserves. But several companies have increased their estimates, and Brunswick UBS says the figure could rise to 180 billion barrels. That would put the country second in the world rankings behind Saudi Arabia, which has an estimated 300 billion barrels.

Russia and its Caspian neighbors are the leading gas producers.

"I believe that by the end of the decade Russia will be proven to have 50 percent more hydrocarbon reserves than Saudi Arabia has today," Brunswick's Paul Collison said recently.

While Shell has been revising its reserves estimates downwards because of tight US accounting rules, the same rules will allow Russian companies to be more liberal in their estimates, analysts say. But first there will have to be a lot more exploratory work.

The uncertainty surrounding Russia's reserves is a reflection of the country's inhospitable terrain, where extracting and transporting oil is four times more expensive than in the Middle East.

"It's the difference between drilling through frozen Siberian earth and sweeping away some sand," one industry expert said.

More foreign capital and investment in new technology is essential if the industry is to get to grips with Russia's remote resources, but the country remains an uncertain place for outsiders.

At the moment, for example, Aim-listed Sibir Energy, the UK oil and exploration group, is trying to understand the apparently unexpected "disappearance" of a ?100 million (US$183.8 million) Russian oilfield stake it thought it held.

And BP's much-trumpeted US$13.5 billion TNK venture has been unsettled by news that its Russian partners want to exit the deal early.

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