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Former Russian Energy Minister: U.S. Should Join OPEC Output Cuts

Nick Cunningham

U.S.-Russian relations took a turn for the worse over the past week after American airstrikes in Syria. U.S. Secretary of State Rex Tillerson is in Moscow this week for discussions. Meanwhile, oil analysts are trying to figure out if the OPEC deal, which hinges on Russian participation, will be extended for another six months. Oilprice.com spoke with Igor Yusufov, a former Russian energy minister and founder of a $3 billion energy investment fund called Fund Energy, to get the latest view from Moscow.

Oilprice.com: Only a few months ago, the U.S. and Russia appeared to be on their way to improved relations. But the U.S. airstrikes in Syria looks to have dashed those hopes. What happens next with U.S.-Russian relations? Some political commentators in the U.S. are wondering whether the sudden confrontational approach from the U.S. government towards Russia is an effort to undercut criticisms of alleged ties between the Trump administration and Russia. How are the latest events and more aggressive rhetoric from the U.S. government being interpreted in Moscow?

Igor Yusufov: On the eve of the talks Secretary of State Rex Tillerson is going to conduct in Moscow we clearly saw that new pragmatic arguments are needed which could bring the U.S. and Russian positions closer together. All my experience in energy as Russian Energy minister, Representative Special of the Russian President Putin for international energy cooperation, and presently as founder of the private $3 billion energy investment Fund Energy indicates that, in every situation, there are ways to overcome differences. And now this way and issue is energy. Russia and the U.S. are the leading energy superpowers of the modern world. Since the times when the Gore-Chernomyrdin commission on economic cooperation has coordinated this segment of bilateral relations many opportunities have been missed. So even in such periods we have to pay more attention to pragmatic things directly connected to the essence of every economic development – to energy.

OP: Former ExxonMobil CEO Rex Tillerson heads to Moscow this week. He has had a positive relationship with Vladimir Putin in the past because of Exxon's work in Russia. How will that affect his talks with his Russian counterpart? What does he hope to achieve? Will they discuss anything energy related or will the agenda be dominated by Syria and Russia's involvement in the 2016 U.S. election?

IY: The counterpart of Mr.Tillerson is the brilliant and very experienced Russian diplomat Sergey Lavrov. I hope the experience and a very positive background of the activities of the former ExxonMobil CEO in Russia will play a role in the upcoming talks which will probably not be simple.

OP: What is President Vladimir Putin's main short-term and long-term objective in regards to its relationship with the U.S?

IY: (WE CANNOT COMMENT ON STRICTLY POLICITAL MATTERS). I am sure that a positive minded – and beyond any doubt, a mutually beneficial – cooperation on the immense economic and energy field belongs to both strategical and tactical tasks of our country in relations with the United States. If you look into the past you find historical roots of such interaction: let us not forget the common struggle of our nations against Nazism, which had an undoubtedly economic dimension too: I mean the lend-lease. And we will as always remember this aspect of American help when precisely in a month time we celebrate a new anniversary of our common victory in the Second World War.

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OP: How much of a priority is sanction relief for Moscow? It seems clear that Putin won't give in on key interests such as Ukraine, or the support of the Syrian government, etc. Is there anything he can do to convince the U.S. to remove sanctions?

IY: Despite sanctions, 2016 was a very successful year for the Russian energy sector. We increased the production of the exports of the main energy commodities such as oil, gas and coal. Foreign investments into Russian energy 2016 set a record, too, with over $20 billion having been invested into Rosneft projects and shares by Chinese, Indian, Qatari and Swiss companies. At the same time, according to specialized Government programs, the Russian industry boosted development of technologies needed for oil and gas production and will sooner or later achieve a self-sufficiency in our production sector. So, in my opinion, we have to consider more carefully who loses more from politically motivated sanctions – in a long-term prospect.

OP: How critical are sanctions in Russia's future oil production? Can Rosneft or other Russian oil companies develop complex new projects, such as the Arctic, while still under international sanctions?

IY: To continue my thought – I am sure that we can do it. The history indulges sometimes to repetitions of certain situations – let us remember that in early 80’s the West imposed sanctions on our energy sector, e.o. on the delivery of large diameter pipes and equipment for the gas pipelines constructions. As a result, we saw a boom of such production in our country. So, every restriction of this kind can be seen in a certain sense as a self-restriction: Russia would be able either to buy from other producers everything needed for projects you mentioned – or to bring it to the market itself.

OP: Can Russia keep its oil production at roughly 11 million barrels per day over the long-term? Will Russian oil output fall without opening up new frontiers such as the Arctic?

IY: As a huge country rich in nature and diversity, Russia has many hidden reserves to be opened to the world if required. Let us take the example of Fund Energy which began its hydrocarbons exploration and production activity 6 years ago from the scratch. We have exceptionally hard-to-recover reserves, which can be compared to the American shale oil and gas. Being still far from top international companies the Fund produces some 3.5 million tons of oil due to our readiness to take over jobs others are not always ready to take. And this is only one direction in which Russia can sustain its internal energy supplies: additionally, we have world`s second reserves of coal and we are ready to develop renewables.

OP: Will Russia comply with the OPEC deal? It has repeatedly said that its promised production cuts of 300,000 bpd would be phased in over the six-month compliance period. Will it hit those targets? Will Russia support an extension of the deal for another six months?

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IY: As a co-author (in the position of the Russian energy minster) of the first-ever OPEC+ oil production cut in 2001, I dare say that the present deal seems very productive to me. Prices rose to $50-55 just after the deal had been announced in December 2016 exactly in the same way they did 16 years ago. Maybe I will astonish some observers but I still propose not only to keep the reduction at least till the end of the year, but to invite the United States to talks on coordinated oil supplies. Despite political differences, which I see as a temporary phenomenon, the U.S. is interested to sell its shale products at a good price, which cannot be secured in the case of an uncontrolled market overflow. Besides Russia has very positive experience of a productive dialogue with OPEC, the origins of which have been laid down during our 2001 talks in Vienna: we are ready to serve the common economic interests of the two great nations.

OP: On a related note, how does Moscow view the OPEC deal? It seems that Russia, because it hit record levels of production late last year, does not have to sacrifice too much...and in return it gets higher oil prices. It would seem the deal would offer a large upside without too much of a downside. Does Rosneft and the Russian government view it that way?

IY: I would cite President Putin, who told at a press conference last December that a $10 per barrel oil price increase brings to Russian state budget calculated on the conservative basis of $40 per barrel some $35 bln – and additionally some $13 bln to Russian oil companies. So a continuation of the solidarity production cut and its extension to new important participants would contribute to the sustainable stability of international markets.

OP: Is there a scenario in which Russia refused to cooperate on a six-month extension to the OPEC deal?

IY: Neither me nor experts from our Fund Energy who participated in the development of the two Russian-American energy summits (2002-2003) would back such a decision. We urge all international actors to stay calm and to concentrate on really pragmatic and important issues which can influence the global development of the mankind in the future – and one of this important issues is energy.

[Edited for brevity and clarity]

By Nick Cunningham of Oilprice.com

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