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Oil Production Suffocating Under State Management

The Financial Times has a sizable, multi-part energy report out today, with plenty of interesting material on Russia, Brazil, prices, demand, etc. that we’ll be cherry-picking over the next few days. Of immediate interest is an article entitled “State takes big piece of the pie” by Catherine Belton, which reports that Russia may be heading for its first decline in oil output in a decade – not because there aren’t plentiful new fields to tap, but because 80% export taxes and aggressive state harassment has discouraged much needed investments:

Oil exports are likely to be further hit as Russia’s continued economic boom boosts demand for fuel domestically. Twenty per cent growth by private companies such as Sibneft and Yukos in 2002 has been replaced by industry-average growth of 2.5 per cent since 2005. The slowdown has matched a state march into the oil sector that has seen direct and indirect control of the sector leap from 28 per cent in 2003 to more than 50 per cent now. (…) Without a bigger commitment by the government, infighting over the size of the cuts probably means “the situation will get worse before it gets better”, says Chris Weafer, chief strategist at Uralsib.

For a vision of the recent past in Russia, read this account of what Yukos did to achieve such high production growth before the Kremlin took on such a dominant role in the energy sector.