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Bloomberg: Russian Oil Output, Exports Fall on Price Drop, Shell Probe

By Garfield Reynolds

Nov. 2 (Bloomberg) — Russia’s oil output and exports fell in October after world prices fell and the government threatened to halt work at a Royal Dutch Shell Plc project that’s the nation’s biggest foreign energy investment.

Average daily oil output during the month was at 9.711 million barrels a day, or 41.07 million tons, down 0.4 percent from 9.751 million barrels a day in September, according to the Energy and Industry Ministry’s CDU-TEK unit. Exports dropped 9.4 percent to 4.94 million barrels a day as the government raised export duties to a record.

Crude oil futures fell 6.6 percent in New York in October, declining for the third month after touching $78.40 a barrel on July 14, the highest since the contract began trading in 1983.

Shell’s $22 billion Sakhalin-2 project may have to stop building key pipelines if Russia’s Natural Resources Ministry decides this month to cancel a construction permit. Shell and Japan, developers of the Sakhalin-2 fields in the Sea of Okhotsk, have rebuked Russia for threatening to halt the project, citing “abnormal” and “one-sided” demands. Japan will also be one of the biggest consumers of the project’s fuel.

The pipelines will carry oil and gas to the southern tip of Sakhalin Island to ensure year-round export. Shell-led Sakhalin Energy Investment Co. is building a plant there to cool natural gas to a liquid state for shipment by tankers starting 2008. It has contracts to sell about 98 percent of its liquefied natural gas output, mostly to customers in Japan and Korea.

Exports Drop

Exports to countries outside the Commonwealth of Independent States fell 6.5 percent to 4.2 million barrels a day. Russia raised export duties to oil to a record $237.60 a ton ($32.41 a barrel) from Oct. 1, up 9.8 percent from the previous duty of $216.40 a ton.

The CIS comprises the former Soviet states, except for the three Baltic republics.

Shipments to refineries in Belarus, Kazakhstan and Ukraine plunged 30 percent to 577,000 barrels a day, from 820,000 barrels a day in September. Exports outside the Transneft system jumped by a seventh in October to 160,000 barrels a day, from 140,000 a day a month earlier.

Production rose 0.9 percent from a year earlier and exports fell 3.4 percent compared with October, 2005.

OAO Lukoil, Russia’s biggest producer, reduced extraction 0.7 percent to 1.80 million barrels a day, compared with the year-earlier period.

OAO Rosneft, key to President Vladimir Putin’s plans to increase the government’s role in the energy industry, raised output 15 percent to 1.77 million barrels a day. Rosneft in September started operating OAO Udmurtneft, acquired this year from BP Plc’s OAO TNK-BP Holding.

Sakhalin Venture

Exxon Mobil Corp.’s Sakhalin-1 venture off Russia’s Pacific coast kept output at 24,200 barrels a day, matching September, when production slid 60 percent from August’s 38,500 a day, according to CDU-TEK. Output at fields run by so-called production-sharing agreements, such as those covering Exxon Mobil’s Sakhalin-1 and Shell’s Sakhalin-2, fell 3 percent in October to 125,000 barrels a day, compared with the previous month.

Shell, BP, Exxon Mobil and Total SA face demands from Russia to cede some control of oil and gas fields to state-aligned companies, including OAO Gazprom and Rosneft. The foreign-led ventures have become anomalies in Russia as President Putin increases state control over the energy industry.

The first phase of the Sakhalin-2 project, which has already been completed, cost $2 billion. Shell announced in July 2005 that the cost of the second phase, involving the construction of the pipelines, new platforms and the LNG export terminal, had doubled to $20 billion.

To contact the reporter on this story: Garfield Reynolds in Moscow at [email protected]

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