In Digest, Russia

The following three articles report on the opening day of the three day, annual St. Petersburg International Economic Forum.

Russia’s much-needed oil price bump unlikely to come any time soon

By Eric Reguly, European Bureau Chief, Globe and Mail, June 19, 2015

St. Petersburg, Russia

St. Petersburg, Russia

ST. PETERSBURG–Russia desperately needs high oil prices to lift its energy-fueled economy out of recession. But according to some of Europe’s top oil executives and ministers who attended Russia’s version of the World Economic Forum in Davos, there will be no return to triple-digit oil any time soon.

Speaking on a panel at the St. Petersburg International Economic Forum (SPIEF), the showpiece business and investment conference of Russian President Vladimir Putin, Russian Energy Minister Alexander Novak said oil at about $65 (all figures U.S.) a barrel could endure for “two to three years.” People walk outside the General Staff Headquarters of the Ukrainian Navy as unidentified gunmen stand outside it in Sevastopol, Ukraine, Monday, March 3, 2014. Multimedia A tale of two economies: Russia vs. Ukraine

He said the Russian budget assumes $50 oil this year and $60 next year. The price on Thursday for Brent crude, the international benchmark, was $64 a barrel. During the SPIEF conference on the same date last year, the price was $113 a barrel, and the Russian economy, in spite of the Western sanctions imposed over the country’s annexation of Crimea, was still growing.

On the sidelines of SPIEF, Russian billionaire oilman Mikhail Gutseriyev said he expects a price of $60 at the end of the year.

Putting downward pressure on prices is U.S. shale oil, the output of which has reached about 5.5 million barrels a day. While output from the seven largest U.S. shale oil fields is expected to fall marginally in July over June, Ben van Beurden, CEO of Royal Dutch Shell, said shale oil production will continue to rise even at current oil prices. “We will continue to see production growth this year and next,” he said on the SPIEF oil panel. “In a much lower oil-price environment, the industry can show it can adapt.”

He said technological advances and cost-cutting have driven down shale drilling costs, dropping the break-even point. He also noted that infrastructure costs are coming down because a building spree had layered the shale fields with pipelines.

Mr. van Beurden was one of several high-profile oil executives at SPIEF, which most foreign CEOs boycotted last year as the Ukraine conflict intensified. But all of the oil bosses, including those from Britain’s BP, Frances’s Total and Germany’s Wintershall Holding, were from European companies – the Americans stayed away for the second year running.

The European oil companies are subject to looser restrictions on doing business with Russia. Europe allowed companies that already had contracts when sanctions were imposed to continue working with Russian partners. A few are even expanding their business in Russia.

On Thursday, the opening of the three-day SPIEF conference, Shell, the German utility E.ON and the Austrian oil company OMV signed a deal with Russia’s Gazprom, the world’s biggest natural gas company, to expand the Nord Stream gas pipeline, which crosses the Baltic Sea, from Russia to Germany, ensuring that country can receive gas that has not passed through Ukraine.

While the European oil executives were not calling for a quick bounce-back in oil prices, partly because of rising U.S. shale oil output, they were bullish on prices in the long term because the declining investment is inevitably curtailing new oil projects. At SPIEF, Peter Parry, global head of the oil and gas practice at Bain & Co., said industry capital spending is down 20 per cent or more over a year. He said the reduced spending means 1 million to 1.5 million barrels a day of capacity will not be built every year. “Over time, it leads to a significant reduction in capacity,” he said.

Alexander Dyukov, CEO of Gazprom Neft, the oil division of Gazprom and Russia’s fourth-biggest oil producer, said that, in the long term, oil will have to return to $100 or more to bring on the expensive projects that will be required to fill the production gap. Some of that oil will come from the Arctic, they said, where the resource is potentially vast.

* * *

Putin urges political settlement for Ukrainian crisis

The Associated Press, June 19, 2015

ST. PETERSBURG, Russia — President Vladimir Putin says Ukraine should offer broad rights to its eastern rebel regions in order to end the conflict that has strained Russia-West ties.

Putin, speaking Friday at the St. Petersburg International Economic Forum, said such decentralization is a key part of the February peace agreement signed in Minsk.

Ukraine and the West have accused Russia of breaking the Minsk deal by continuing to support the separatists with troops and weapons. Moscow denies this.

Commenting on the accusations, Putin said the rebels were simply defending themselves against the Ukrainian military. He added “once an attempt is made to solve the problem by political means, those weapons will be gone.”

He said Ukraine must give amnesty to the rebels and hold regional elections in the east per the Minsk deal.

* * *

Russia willing to help Greece as Tsipras pleads for EU leniency

By Eric Reguly, European Bureau Chief, Globe and Mail, Friday, June 19, 2015

Russia said it would consider financial aid to effectively bankrupt Greece, a Russian official said before Greek Prime Minister Alexis Tsipras addressed Russia’s showcase economic forum on Friday.

The overture came as the Greek crisis escalated to the point the European Central Bank agreed to pump more emergency funding into Greece’s banks, which are losing deposits at an alarming rate. But the banks reportedly are to receive less than the €3-billion ($4.2-billion) or so that the Greek government has requested from the ECB.

The Greek banks are in danger of collapse after a steady run on deposits that began in earnest after the election of Mr. Tispras’s radical left Syriza government in January. Syriza went to war with Greece’s international creditors by pledging to end the austerity it claimed was snuffing the life out of the Greek economy.

Depositors pulled more than €1-billion from Greece’s four main commercial banks on Thursday, raising the week’s total to €3-billion. That was three times the average weekly amount over the past two months, according to the Financial Times.

In an interview on Russia’s RT television, which was reported by Associated Press, Russian deputy prime minister Arkady Dvorkovich said “the most important things for us are investment projects and trade with Greece. If financial support is needed, we will consider this question.”

There were unconfirmed rumours that Russia was willing to give Greece €2-billion, though it was not clear whether the amount, if it were in fact offered, would come in the form of loan or an investment in a certain project. Mr. Tsripras, who is in St. Petersburg with a Greek trade and economics delegation, was due to give a press conference at the Saint Petersburg International Economic Forum (SPIEF) later today.

On Friday at SPIEF, Greece and Russia signed a deal to extend a pipeline that would carry Russian gas to Europe through Turkey and Greece. If the pipeline is built – construction is expected to start next year – Greece would receive hundreds of millions of dollars in transit payments.

A spokesman for Russian Prime Minister Vladimir Putin played down the notion of outright loans to Greece. “To consider such a question, you first have to hear some kind of proposals or initiatives from our Greek partners,” Dmitry Peskov told the media. “To discuss this abstractly, without having any appeals or proposals, would be shortsighted.”

While it was well known that Mr. Tsipras would attend SPIEF, it came as a surprise that he emerged as the first speaker, after Mr. Putin himself, at the conference’s keynote forum on Friday. In a short speech, Mr. Tsipras made another plea for leniency from the European Union as Greece faces default on its bailout loans and possible exit from the euro zone.

“The European Union should go back to its initial principals of solidarity and social justice,” he said, addressing the vast SPIEF audience in Greek. “Pursuing strict economic measures will help no one.”

While a small loan or investment would not fix Greece’s predicament – the International Monetary Fund is demanding repayment of a €1.6-billion loan at the end of the month – it would send the signal that Greece is willing to move closer to the Russian orbit if it were to leave the euro zone.

“Why am I here, not in Brussels? I am here because I believe [Russia] has a big role to play,” Mr. Tsipras said in his address. “Russia is one of the most important partners for us.”

Mr. Putin did not mention Greece in its speech, which was largely devoted to the state of the Russian economy. Economic sanctions imposed by Europe and North America, combined with the plunge in the price of oil, Russia’s main export, have pushed Russia into recession for the first time since the 2008 financial crisis. Mr. Putin said the worst of the downturn was over. “We have managed to stabilize the situation,” he said.

He said that inflation, which has hit double-digit levels, is decelerating and that the jobless rate, at 5.8 per cent, is well below the crisis peak of 8.3 per cent. Russia, he added, is working on efforts to overcome the sanctions by encouraging domestic production of various goods and is expanding its trade and investment ties to China and other high-growth Asian markets.

In an interview with American TV host Charlie Rose, Mr. Putin, as he has in the past, said the fighting in eastern Ukraine would stop if the government in Kiev were to fully implement the Minsk II peace agreement. He did not, however, repeat previous denials that Russian troops were supporting the rebel forces in Ukraine. “We are not aggressive,” he said. “We are persistent in pursuing our interests.”

Read also:
Greece extended ECB lifeline as Tsipras readies for EU summit, Bloomberg News, June 19, 2015

Euro zone calls crisis summit on Greece as money flees, Reuters, June 18, 2015

German drugmaker Merck flaunts Russian expansion as others flee, The Moscow Times, June 18, 2015

Greece has not asked Russian finance ministry for aid – deputy minister, Reuters, June 18, 2015



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