RUSSIA - Part 3 - Oil Exports & Logistics

Russia's exports of crude oil, condensates and petroleum products have risen to a record of 3.35 million b/d, compared to 2.7 million b/d in mid-1996 and 2.35m b/d in September 1994. The rise is due to a big fall in world oil prices since October 1997, a decline in domestic consumption and in demand in fellow CIS countries, and an increase in the allocation of crude oil exports for government revenue.

Exports of oil products average 750,000 b/d, compared to 700,000 b/d in mid- 1996. Fuel oil exports average 450,000 b/d, compared to less than 400,000 b/d in mid-1996. Exports of gasoil, gasoline and other products exceed 300,000 b/d, as in mid-1996. Exports of natural gas this year are expected to be higher than in 1997, with the increase due to falling gas prices (see Gas Market Trends).

The country's exports of petrochemicals, on which the federal government depends for revenue as in the case of oil and gas sales, have been affected negatively by transport bottlenecks and competition from European exporters of higher quality products. Most of the petrochemical industries are concentrated around the Volga-Urals region, from which transportation costs are high (see Downstream Trends).

The Market Perspective: World oil prices are expected to be low in the near future. This is due to depressed demand caused by the Asian economic crisis and its outside effects and by global warming and to increased supplies from OPEC and non-OPEC sources. The situation would remain unchanged through the rest of 1998 and in 1999, unless OPEC cuts oil production by another 2.5m b/d and Saudi Arabia resumes the role of swing producer as it did before Iraq invaded Kuwait in August 1990.

The spot price of Russia's main export blend of sour crudes Urals is influenced by the prices of Dated Brent and spot Dubai. Because there has been strong demand for fuel oil and sour crudes in recent months, the spot price of sour crude marker Dubai has had a premium over Dated Brent - a light/sweet marker whose price influences most crudes in spot trading. Brent futures are influenced by the price of WTI, a light/sweet marker which does not trade outside the US.

According to APS Energy Group, the spot price of Urals in North West Europe would average about $11.95/barrel during the third quarter of 1998, compared to $12.17 in the second quarter and $17.96 in the third quarter of 1997. Spot NWE Urals would rise to only $12.85 in the fourth quarter and to $12.90 in the first quarter of 1999 if the winter months are to be as mild as in late 1997 and early 1998.

                      Spot Price Differentials

                            (US$/Barrel)

             D. Brent    Dubai   Urals NWE Urals Med

     3Q 97     18.52     17.67     17.96     17.77

     4Q 97     18.79     18.05     18.37     18.54

     1Q 98     14.13     12.49     13.66     13.26

     2Q 98     13.34     12.32     12.17     11.85

     3Q 98*    11.93     12.08     11.95     11.62

     4Q 98*    13.00     12.90     12.85     12.80

     1Q 99*    13.20     12.95     12.90     12.85

     2Q 99*    11.80     12.00     11.95     11.85

     3Q 99*    11.70     11.95     11.85     11.80

     4Q 99*    13.00     12.85     12.80     12.75

*APS Energy Group estimates, assuming the 1998 and 1999 winters would be mild.