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Cooperation with OPEC? No thank you, ex-Soviet producers say
October 20, 2015 / 11:04 AM / 2 years ago

Cooperation with OPEC? No thank you, ex-Soviet producers say

* Russia to defend its market share from Saudi oil

* Kazakhstan, Azerbaijan face falling output

* Baku declines OPEC invitation for Oct. 21 meeting

* Russia, Kazakhstan to attend at experts level

By Katya Golubkova, Mariya Gordeyeva and Nailia Bagirova

MOSCOW/ASTANA/BAKU, Oct 20 (Reuters) - Ex-Soviet oil producers, led by Russia, are not bowing to pressure to reduce output in order to lift global prices, leaving little chance of a deal when OPEC experts meet with producers outside the group on Wednesday.

The ex-Soviet oil nations have the financial cushion to weather low prices and some of them, too, find it difficult to cut output amid a battle for market share.

“I think they will not cooperate. They (Azerbaijan and Kazakhstan) are typical non-OPEC countries who simply produce at a maximum they can,” said Daniel Yergin, vice-chairman at Washington-based IHS think-tank.

OPEC and producers outside the group will attend a technical meeting on Oct. 21 in Vienna, with invitations sent to Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman and Russia.

Moscow plans to send a senior Energy Ministry official, head of the international cooperation department Ilya Galkin, yet it has already said it sees no point in artificially cutting production.

Kazakhstan and Azerbaijan, the biggest producers among ex-Soviet countries after Russia, can manage with current prices and face a natural decline in output anyway, officials say.

Vladimir Shkolnik, Kazakhstan Energy Minister, told Reuters Kazakhstan planned to send an Energy Ministry official or at least a member of its diplomatic mission to the Vienna meeting. He said Astana has already contributed as its output has fallen.

Azerbaijan has received an invitation but does not plan to attend the meeting in Vienna, Energy Minister Natig Aliyev said.

“Azerbaijan has no specific need to take part in the meeting,” Aliyev told reporters on Tuesday. “As it is known, oil produced in Azerbaijan belongs to the consortium (ACG) so decisions on this matter could not be taken by the state.”

FINANCIAL CUSHION

Russia, Kazakhstan and Azerbaijan all have safety cushions of income from oil and gas to help in the hard times of benchmark Brent crude under $50 a barrel.

Russia puts aside energy revenues into two sovereign funds which have a combined $144 billion in savings. Kazakhstan’s National Fund has $68 billion while Baku runs a $36 billion oil fund.

Kazakhstan plans to produce 79.5 million tonnes of oil this year (1.6 million bpd), down from 80.8 million tonnes in 2014, with output seen fluctuating around current levels before new production comes onstream over the next years.

Astana is even considering tax breaks for some of its mature fields to maintain output, which contrasts with its earlier forecasts that production may fall by a tenth next year if prices drop to $30 per barrel.

“This (cut by a tenth) is one of the worst forecasts... Oil is unlikely to go that low and stay there for long,” said a senior government official.

Oil production in Azerbaijan is expected at 40.7 million tonnes this year, down 3 percent year-on-year, and falling further to 40 million tonnes in 2016.

Over 75 percent of Azeri oil output comes from BP -led Caspian offshore fields Azeri, Chirag and Guneshli (ACG), where output has been volatile.

Helped by the weak rouble, Russian oil output is staying near its post-Soviet highs of around 10.7 million barrels per day (bpd), with Moscow ready to defend its market share as rival Saudi and Kurdish oil reaches Europe.

Rakhman Gurbanov, vice-president for Azeri state energy company SOCAR’s oil-gas production and transportation, said that output may be regulated by mothballing wells.

However, Russia cannot sharply cut output as wells will freeze if they stop pumping, and it cannot store the output it would otherwise export.

For Kazakhstan, a sharp output cut is close to impossible due to similar technical reasons, industry sources say.

“You can stop adding new wells, lower the pressure or mothball a well - but restoring it will be more costly (than keeping oil flowing) - here things are largely like in Russia”, a source at state energy firm KazMunaiGaz said. (Additional reporting by Raushan Nurshayeva, Alla Afanasyeva and Denis Dyomkin in Astana; writing by Katya Golubkova; editing by Christian Lowe and William Hardy)

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