TEXT OF INTERVIEW
KAI RYSSDAL: It’s three days in a row now that oil’s taken a big spill. Crude dropped more than $5 today to finish at $129.29 a barrel. It’s off almost 12 percent since Monday, mostly because of worries that a slowing U.S. economy’s going to mean lower demand. Or so the conventional thinking goes, anyway.
Figuring out why oil prices move the way they do is an inexact science at best. We’ve been trying to make some sense of the usual suspects this week — Iran, Venezuela and Nigeria so far. Today we move up the list of big producers a bit. Nicholas Redman’s a Russia analyst with the Economist Intelligence Unit. Mr. Redman, good to have you with us.
NICHOLAS REDMAN: Good afternoon.
RYSSDAL: Basics first, I suppose. Where does Russia sit in the world oil market in terms of production and output.
REDMAN: In terms of production and output it’s number two, behind Saudi Arabia. In terms of production it’s pretty much matching Saudi Arabia barrel for barrel, or has been for the last couple of years. But because it’s a big, domestic consumer, it’s definitely at number two in the oil export market at about 5, 6 million barrels a day.
RYSSDAL: There was a period of intense growth in the Russian oil economy in the 1990s, and that’s sort of when it came to global consciousness as a key element of the oil industry. How did it get that growth and what’s happened since?
REDMAN: Growth plummeted in the Russian oil economy in the early 1990s. And really through to the mid-1990s as a result of the chaos from the Soviet Union’s collapse. Between 1999 and 2005 that rose way up — 50 percent increase. Absolutely astonishing recovery. Most of that was achieved, however, simply by more advanced extraction techniques at existing wells, Western Siberia, all the pipelines are from there, basically going west.
RYSSDAL: So, if they want to grow any more, they have to go to the Far East, which I imagine is more difficult.
REDMAN: The Far East and the far north, and both are extremely difficult. And offshore Russia doesn’t have much experience of producing oil offshore.
RYSSDAL: Are they trying to do it all themselves or are they inviting foreign oil companies in to help them out?
REDMAN: Well, here’s the thing. A few years ago foreign investment did play a fairly important role in the Russian oil sector as they were developing fields. And then the state bullied its way in and took a larger share in the projects. Today what you have is a Russian oil industry in which the state has a much more direct grip. But if Russia does want to even maintain its share of the world export market, it’s now time — or it will very soon be time — to move on to the virgin territories. Are the Russian companies equipped to take the job on? Because at the moment foreigners aren’t really getting enough of an incentive, or enough of a look-in to play a meaningful role.
RYSSDAL: When you think about the internal Russian oil economy, are there government incentives for increasing production?
REDMAN: Well, they’ve recently delivered tax cuts. And the oil companies have, in return, responded that they will now, after a year of stagnation, increase their output accordingly. It’s a very difficult thing to do. The Russian tax system on oil is effective but it’s blunt.
RYSSDAL: What are the numbers? How much tax are Russian oil companies paying?
REDMAN: Well, a huge amount. Probably about 60 percent of total take-up. The way it works is . . . when the oil price per barrel goes above $27, $29, basically 90 percent of that revenue goes directly to the state in taxes.
RYSSDAL: And we’re long past $27 and $29 a barrel.
REDMAN: Yeah, I’m afraid so.
RYSSDAL: What about the impact on the Russian presence on the global oil market? I mean, you never hear on a day when oil spikes or plummets down $5, $6 . . . You never hear, “Oh, it’s because the Russians did this or the Russians did that. I mean, do they play their presence in the oil markets heavily?
REDMAN: The Russians have had the option of joining OPEC for some time but have never done so. They are pretty much a price taker. Generally, they’re not a mover in the way that Saudi Arabia is, or even to an extent someone like Venezuela or Nigeria. The slowdown or interruptions you’ve seen in those economies seems to have had a more direct effect on the oil price than any news coming out of Russia.
RYSSDAL: Mr. Redman, thanks very much for your time.
REDMAN: OK. Thank you.
RYSSDAL: Nicholas Redman is a European analyst with the Economist Intelligence Unit. We reached him in London, England.
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