Igor Yusufov is an electrical engineer with more than 30 years’ experience in the oil and gas industry. He was deputy chair of the Russian Federation Economic Security Committee and deputy industry minister, chair of the Russian States Reserves Committee, and later general director of the Russian State Reserves Agency. He led the Energy Ministry and then was appointed special envoy of the Russian President for international energy cooperation.
Igor Yusufov: Russia has been always rather cautious in joining solidarity cuts of oil production together with other OPEC and non-OPEC countries. The reason is obvious: due to cold winters and partially to a still low energy efficiency, we burn a remarkable amount of extracted oil and gas to obtain warmth and power. Being the leading producer, Russia uses internally about 60 per cent of extracted oil and even a bigger percent of natural gas. This is one of the reasons why our country is sensitive about such cuts. Both private companies and public companies participate in them, and the government takes the monitoring function.
Roughneck: What is Russia’s goal in agreeing to cut its production? Is there a specific oil price the country needs to achieve?
Yusufov: The main reason is the maintenance of stability on international oil markets. And besides, let us remember the phraseology we began to use in 2001 — that oil prices should be just and consider the interest of both producers and consumers. This is exactly the aim of our policy.
The Russian energy ministry initiated a productive dialogue with OPEC (as an organization in which many key oil producers participate) and the International Energy Agency, which represents the other side. The first ever cut of Russian oil production by 150,000 barrels per day during Q1 of 2002 was agreed together by OPEC and non-OPEC countries at the 117th conference of OPEC Oil Ministers in Vienna, Austria, in September of 2001.
It was widely remembered in connection to the recent cut adopted by OPEC and non-OPEC countries this December. The reduction comprises almost 560,000 barrels per day: Russia has pledged the biggest cut among margins of the OPEC conference. We had meetings with Minister of Energy and Mines of Venezuela, Alvaro Silva Calderon; Minister of Energy and Mines of Algeria, Chakib Khelil; Oil Minister of Kuwait Adel Al Subaih and Saudi Minister of Petroleum and Mineral Resources Ali bin Ibrahim Al-Naimi. The immediate result of these intense talks – led practically around the clock – was the preservation of the OPEC oil price corridor of $22 to $28 per barrel, which we considered to reflect just oil prices.
As for the effectiveness of the present Russian negotiations with OPEC: Bloomberg has reported that they already brought into the state budget more than $6 billion [400 billion rubles]. Goldman Sachs has raised the oil price forecast to $55-59 for the 2Q of 2017. Let me note that the Russian state budget for 2017-2019 is based on the oil price of $40 per barrel. On Dec. 15, the average URALS [Russia’s oil price benchmark] price was $51.41 per barrel.
Roughneck: Among many energy and banking analysts, there is significant skepticism that Russia will comply with the production cut targets – based on the perception that Russia hasn’t always complied in the past. Is this a legitimate point and concern for the 2017 cuts?
Yusufov: First, I would not agree that Russia did not comply with oil production cut agreed in 2001 in Vienna. We were ready to provide every kind of evidence about the physical content of this cut. And one more thing: stories about Russian non-compliance were often invented by politically motivated press. I remember, for example, how my colleagues had to explain to one European journalist that the cut was related to the production and not the export of oil. Hopefully we achieved our educational goal.
Roughneck: How has President Vladimir Putin influenced this OPEC/non-OPEC agreement and the overall relationship?
Yusufov: As far as international oil prices are a matter of considerable importance for Russia, you could not imagine the international energy dialogue to be out of the attention of President Putin – I can assure you as former Presidential Special Representative of the Russian Federation for International Energy Cooperation. So, it was the head of the Russian state who signaled the readiness of Russia to join the mentioned oil production cuts. In October at the World Energy Congress in Istanbul, Mr. Putin said, “Russia is ready to join the measures to limit production and urges other exporters to do so.”
Roughneck: How might a relationship between President Trump and President Putin impact energy geopolicy?
Yusufov: I think that it is too early to conjecture about future U.S.-Russia relations and their geopolitical effect in the field of global energy. But let us remember the proverb: where there is the will, there’s a way. Both our nations would profit from the active continuation of the energy dialogue, and I would be glad to convert the very positive experience of bilateral interaction we accumulated 15 years ago into concrete help in building new bridges between our countries.
Let us remember that our nations look back on different periods in political and economic ties. But despite a big and sometimes sad variety of their vectors, we have much in common – for example, deep interest of our ordinary citizens to help each other. And of course, the historic victory over Nazism remembered last year in connection to its 70th anniversary.
