22 February 2003 00:43
Maintaining oil supply relies on both Russia and Saudi Arabia
>From Mr Mark Lewis.
Sir, Mr Chris Weafer (Letters, February 17) and Mr Robert Mabro (Letters,
February 19) are partly right in their assessments of the relative roles of
Russia and Saudi Arabia in oil production, but they are only telling us part
of the story.
It is less a case of "either/or" as far as Russia and Saudi Arabia
are concerned, than "both". The probability is that growing Russian
oil production will soon be needed to offset declining output in the
over-exploited mature regions of North America and Europe; and that in the
Middle East, Organisation of Petroleum Exporting Countries members will have
to provide the bulk of the world's incremental oil requirements. This
reflects not only the distribution of oil resources but also the trend in
company investments. BP's recent moves in Russia clearly demonstrate
that it believes buying into Russian companies is a better use of its cash
than drilling in those non-Opec regions it has access to. This investment,
however, is more likely to increase the efficiency of Russian production than
add to the volume - it is further consolidation in the industry rather than
expansion.
Concerns over Saudi Arabia, as Mr Mabro points out, not only centre on the
scale of the kingdom's resources but also its practice of conveniently
maintaining spare production capacity. This has been used both to offset
sudden shortages elsewhere and to outgun the price hawks in Opec. This only
adds to the dependency, however, and heightens the risk. The problem is that
investment decisions in additional production capacity in the country are in
the hands of the state rather than commercial oil companies. We should not,
therefore, assume that the Saudi government would be willing and able to
continue paying this "insurance premium" on behalf of oil
importers.
Mr Mabro also rightly downgrades the "oil weapon" risk but fails to
mention the potential impact of a political "accident". Ayatollah
Khomeini did not deliberately restrict oil production in Iran, but in a short
few months following the revolution output fell by 5m barrels per day and has
still not recovered to anywhere near the levels under the Shah.
Strategic concern over the growing dependence on Middle East oil was evident
in George W. Bush's energy policy before September 11. In the medium
term, attempts to dilute the risks are restricted mainly to the supply side:
encouraging rapid expansion in output in the former Soviet Union; expanding
strategic oil stocks and opening up Iraq. The latter cannot, of course, be
achieved while Saddam Hussein is in power.
Mark Lewis, Managing Director, Energy Market Consultants, London W1W 6XD
[FTI [The Financial Times]] |
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