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Oil production in Russia has peaked, warns Lukoil executive

By Javier Blas and Carola Hoyos

Financial Times
Europe Ed1

Russian oil production has peaked and may never return to current levels, one of the country's top energy executives has warned, fuelling concerns that the world's biggest oil producers cannot keep up with rampant Asian demand.

The warning comes as crude oil prices are trading near their record high of Dollars 112 a barrel, stoking inflation in many countries.

Leonid Fedun, the vice-president of Lukoil, Russia's largest independent oil company, told the Financial Times that he believed last year's Russian oil production of about 10m barrels a day was the highest he would see «in his lifetime». Russia is the world's second-biggest oil producer.

Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining sharply, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, «the period of intense oil production (growth) is over».

The Russian government has admitted that production growth has stagnated, but has shied away from saying that postSoviet output has peaked.

Viktor Khristenko, Russia's energy minister, who is pushing for tax cuts that could stimulate investment, said last week: «The output level we have today is a plateau, stagnation.»

Russia was until recently considered the most promising oil region outside the Middle East. Its rapid output growth in the early 2000s helped to meet booming Chinese demand and limited the rise in oil prices.

The trend, however, has turned, with supply dropping below the levels of a year ago 

for the first time this decade, according to the International Energy Agency, the energy watchdog.

Mr Fedun's outlook is bleaker than the IEA's, which forecast Russia's oil production would rise to 10.5m barrels a day in 2012 from 9.95m b/d last year. But even the IEA has begun to revise down its projection, making it likely the world will depend more on other sources such as Opec and biofuels.

The sluggish growth in non-Opec supplies and robust demand in China and other emerging countries is this year offsetting a slowdown in US energy demand.

Oil futures yesterday rose to Dollars 111.99 a barrel, just below last week's record of Dollars 112.21 a barrel. They ended the day at Dollars 111.76, a record settlement.

First fall for 10 years, Page 2 Commodities, Page 28 www.ft.com/oilwww.ft.com/commoditiesboom

Date:  15.04.2008

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