Putin’s reward for doing a deal with OPEC overshadowed by risks

MOSCOW / Bloomberg

Neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC in cutting oil output to boost prices. His reasons may be pragmatic rather than political.
As Russia’s oil minister meets his Saudi Arabian counterpart in Doha on Tuesday, the world’s second-largest crude producer faces numerous obstacles in cooperating on such a deal even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.
So far Russia’s top oil official have offered mixed signals. Energy Minister Alexander Novak has said he could consider reductions if other producers joined in. Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC and a close Putin ally, said last week in London that coordination would be difficult because no major producer seems willing to pare output.
“The history of relations with OPEC suggests that Russian companies are not keen to cut production,” James Henderson, an oil and gas industry analyst at the Oxford Institute for Energy Studies, said by phone. “There are certain practical difficulties, and the companies would rather somebody else did that, and they could benefit once the price goes up.”
Oil surged the most in seven years on Feb. 12 after United Arab Emirates Oil Minister Suhail Al Mazrouei said producers are ready to work together and won’t make cuts unless there’s complete cooperation, according to a Sky News Arabia report. Russia’s economy contracted by 3.7 percent in 2015 and may shrink by 0.8 percent this year, according to economists surveyed by Bloomberg.

Frozen Pipelines
In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius. That’s a challenge for anyone thinking of turning off the taps.
The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues.
Production from a shut-in well might never be restored in full, Maxim Nechaev, director for Russia at consulting firm IHS Inc., said by phone.
Russia could reduce exports to global markets without cutting production simply by putting more crude into long-term storage. Trouble is, the country has too few facilities.