Russian oil and gas development in Jordan, Qatar, and Saudi Arabia

Russia promotes oil and gas cooperation with Middle East
14:04 | 22/ 01/ 2007



MOSCOW. (Sergei Kolchin for RIA Novosti) - Russia is a major player on the global oil market, being the world's second biggest oil producer and exporter after Saudi Arabia. Last year, it produced 480 million metric tons of crude and exported 49% of it, or 233 million metric tons.

The main players on the Russian oil market are LUKoil, which accounts for 19% of the country's output (or 90.4 million metric tons), Rosneft (17%, 81 million metric tons), TNK-BP (15%, 72.4 million metric tons), Surgutneftegaz (14%, 65.5 million metric tons) and Gazprom (10%, 46 million metric tons). The top five producers therefore account for three-fourths of the national output.

Russia controls the world's seventh-largest oil reserves after Saudi Arabia, Iran, Iraq, Kuwait, the UAE and Venezuela. Experts estimate its proven reserves at 72.3 billion barrels. Russia is not an OPEC member, and the organization - by mutual consent - is not considering upgrading its current observer status.

Nevertheless, Russia closely cooperates with the oil cartel in developing a coordinated export policy. This is becoming especially important given the current decline in global oil prices. Some OPEC members, notably Iran and Venezuela, have already spoken in favor of cutting production. Russia has also said that it might reduce its output owing to the Russian-Belarusian oil conflict.

Yet Russia's interaction with the Middle East producers does not boil down to coordinating price policies on the global market; rather, Moscow is seeking full-fledged cooperation with these countries. There are three good examples: Saudi Arabia, Qatar and Jordan (the latter does not produce oil, but many Russian oil companies have moved there from Iraq).

Saudi Arabia

The West is very reluctant to allow Russia and Saudi Arabia to bring their positions closer. A potential agreement between the world's top two oil exporters is viewed as very dangerous, despite the disagreements the two countries have now: Chechnya, Islamic fundamentalism, and assessments of the Middle East confrontation. It is nevertheless obvious that they have common economic interests, notably supplying oil to consumers and maintaining high oil prices.

Russian companies are gradually entering the Saudi Arabian market. LUKoil is already carrying out the country's largest gas project, in the north of the Rub al-Khali desert. In 2004, the Russian major signed a 40-year agreement with the Saudi Arabian government on the development of gas and gas-condensate fields. LUKoil plans to invest up to $3 billion in the project. Gazprom is also showing interest in the country's projects.

Although Russia cannot hope for a major breakthrough in the oil sector, the situation with gas is different. In 2003, the parties began discussing a gas initiative put forth by Prince (now King) Abdullah, which included a number of projects designed to develop Saudi Arabia's gas sector with Russia's assistance. The total value of all projects was estimated at $20-25 billion, and Russia could receive a significant stake. Also in 2003, Russia and Saudi Arabia signed a framework agreement on oil and gas cooperation. Now it is time to make this cooperation more intensive.

Remarkably, that same year the two countries signed an oil and gas agreement that provided for joint control over the oil supply in order to maintain oil prices at an acceptable level.

Qatar

While Russia and Saudi Arabia have a relationship of equals, Qatar has lower oil reserves than either country (15.2 billion barrels, or 1.3% of the world's reserves). But this country has a strong influence on OPEC, and Russia is extremely interested in establishing ties and cooperation with it. The first serious contacts between the two countries have begun only recently. In 2005, the head of the Russian Chamber of Commerce and Industry, Yevgeny Primakov, visited Doha. In 2006, Russian Foreign Minister Sergei Lavrov held talks with his Qatari counterpart, Hamad bin Jasem, at which they confirmed their intention to intensify bilateral energy cooperation. Russia and Qatar have even more interests in the gas sector, because this Middle Eastern country controls the world's third largest gas reserves, 11.2 trillion cubic meters. Together with Iran and Algeria, Russia and Qatar could set up a gas OPEC that would control a bigger share of the market than the actual OPEC's share of oil.

International experts believe that at present Russia's Gazprom could be involved in joint gas production and refining projects in Qatar. The two countries are also interested in coordinating gas prices.

Jordan

Jordan does not control any large oil or gas resources, but after the latest war in Iraq many Russian oil companies that had contracts in Iraq have moved there. So relations with this country are now of special importance for Russia. Promising areas of Russian-Jordanian cooperation include geological exploration in the country and agreement on potential joint development in Iraq, as well as the construction of a new pipeline from Iraq to Jordan. Moreover, Jordan's geographical location makes it an important hub in the zone of interests of large Russian companies operating in the Middle East and connected to potential markets and middlemen, with access to Israel, Syria, Iraq and northern Saudi Arabia.

For all of the above reasons, Russia's interests in the Middle East are obvious and must be secured, a process which is likely to continue in the near future.

Dr. Sergei Kolchin is a senior research fellow, the Institute of Economics of the Russian Academy of Sciences.

The opinions expressed in this article are those of the author and may not necessarily represent those of RIA Novosti.