Time to build Russian-US bridges
Former Russian energy minister Igor Yusufov says the new US administration will be a boon for hydrocarbons cooperation
From Moscow's perspective, the Western media's ceaseless fretting about Donald Trump is silly. Igor Yusufov, tells Petroleum Economist, the new regime offers scope for improved international energy dialogue. Yusufov was Russia's energy minister between 2001 and 2004, when he was also chairman of state-owned Rosneft. Now he runs Moscow-based Fund Energy, with assets in Siberia, and is understandably bullish about what a sympathetic stance in the White House might do for his country's energy sector.
Yusufov has also known the new Secretary of State—former ExxonMobil boss Rex Tillerson—for 15 years. And he's convinced he'll bring good things for Russian oil and gas. "A person of such professional knowledge and background would certainly approach energy challenges and problems with the same force and insistency he showed in his many years at Exxon," says Yusufov.
Tillerson earned much respect in Moscow—and an award from the Kremlin—for his dogged pursuit of a pact with Rosneft despite US sanctions. The embargo is still in place, but Yusufov is hopeful.
With energy the centrepiece of every economic development it's hard to conceive that the participation of American companies in lucrative Russian oil and gas projects or global energy prices would not be part and parcel of the new Russian-American agenda.
In the oil industry, such pragmatism is par for the course. In the context of the deepening controversy around Trump's contacts with Russian officials, though, it's political dynamite. In late March, the head of the FBI told a Congressional committee that his agents were investigating links between Russia and the Trump election campaign. Muscovite cheerleading for the new US president won't be welcome.
Russia has much to gain from a patching-up of relations, especially with American energy firms. Yusufov paints this in terms of common US-Russian interests. A vivid example: Tillerson's old company and Rosneft exploring in the Kara Sea.
"The results of this breakthrough technological achievement are now analysed in Houston labs, and shortly we could hear about a big new oil-and-gasfield in this Russian offshore," says Yusufov. "But in order to proceed with this work, Exxon's experience in technology and management are needed."
Trump's election could also play a role in facilitating cooperation in stabilising crude prices, says Yusufov.
"The new US administration has set as a goal the achievement of energy independence from Opec. It is quite realistic keeping in mind another American intention: to boost shale oil and gas production both for internal needs and export. But at the same time the effectiveness of dialogue with Opec is now obvious. Russia would be ready to implement its expertise in this dialogue aimed at sustainable stability of global energy markets," he says.
Yusufov puts great emphasis on Russia's latest deal with Opec. After the group agreed in November to remove 1.2m barrels a day from supply, Russia led non-Opec countries in pledging to cut about 0.56m b/d. Russia promised to remove 300,000 b/d during the six-month period of the cuts (it has removed about 100,000 b/d so far).
The talks around "solidarity cuts" were never easy. "I can testify to that because in 2001 as Russian energy minister I conducted these negotiations with Opec oil ministers in order to introduce the first-ever production reduction of this kind," says Yusufov. "The Russian share in the latter was 140,000 b/d, and due to our joint effort we managed to bring the oil price from $18 a barrel to $21/b and to conserve it in the $21-25/b."
Opec insiders see those earlier cuts differently—saying Russia agreed to trim supply but didn't come good. It made many of them suspicious that the Kremlin would do the same this time. The market's reaction, in March, to news that Russia's supply in February had yet to extend the cuts made in January added to the prevailing scepticism.
Yusufov points to the economic significance for Russia of making sure this deal sticks. "For Russia, it is a serious factor: President Putin announced in December that a $10/b elevation of the crude price brings to the Russian budget $29bn," he says.
These days, Yusufov doesn't have to worry about persuading unruly oligarchs to carry out the energy ministry's production plans. In 2011, he established Fund Energy, which controls about $2bn of assets, and works on oil and gas projects mainly in Siberia. It holds upstream licences for more than a dozen blocks in the region, where reserves could be at least 230m tonnes of oil and 0.5 trillion cubic metres of gas.
But Yusufov's ambitions go beyond hydrocarbons extraction. "Our strategic goal is to create a medium-sized vertically integrated oil and gas company. But we are in active search of innovative projects from the field of communications and IT to enrich our business with new directions both in and outside the Russian Federation."