April 22, 2017 2:30 am JST

Russia hints at support for extending OPEC output cuts

Energy minister says crude prices appropriate, deal 'fulfilled successfully'

TAKAYUKI TANAKA, Nikkei staff writer

Russian Energy Minister Alexander Novak (Photo by Takayuki Tanaka)

MOSCOW -- Crude oil's current price level in the $50 range per barrel "suits both producer countries and consumer countries," Russian Energy Minister Alexander Novak said, implying that Moscow is inclined to support extending joint production cuts with OPEC.

As one of the world's top oil producers, alongside the U.S. and Saudi Arabia, Russia has substantial influence over oil markets. The country expects to pump 549 million tons of crude this year, around record levels.

Current prices help to "lower volatility" and restore the "attractiveness of oil production" as an investment, Novak told The Nikkei.

The output reduction deal, which took effect in January, is currently set to end in June. Novak expects an extension to be discussed when officials from OPEC and nonmember countries meet in May.

"We see that the agreement with OPEC has been fulfilled successfully by OPEC members as well as nonmembers," he said. "The agreement is for half a year with the possibility of prolongation for a further half a year."

Russia, focused on growing its market share, had been leery about extending the agreement. But Novak's comments suggest that Moscow is shifting its focus to preventing prices from plunging, as higher U.S. shale oil production exacerbates an excess of supply.

Russia intends to keep production at current levels until 2035, the minister said, with new fields in Siberia and elsewhere to be developed to that end. He sees global demand rising gradually over the long term.

The minister indicated openness to Japanese investment in Russian state-run energy companies. But one such possibility, a proposal for Japanese trading house Mitsui & Co. and the state-owned Japan Bank for International Cooperation to buy a roughly 5% interest in RusHydro, has fallen through. Novak chalked this up to a failure to agree on terms.

The "conditions proposed by Mitsui and JBIC were less beneficial" than those offered by Russia's VTB Bank, with which RusHydro ultimately inked a deal, the minister said. But he added that he will not rule out future capital participation by Japanese companies in the state-run power company as it looks for a strategic investor.

On potential joint Russo-Japanese projects, Novak expressed hopes for expanded participation by Japanese businesses on liquefied natural gas plants on Russia's Yamal and Gydan peninsulas.

The energy minister is visiting Japan to pave the way for Japanese Prime Minister Shinzo Abe's visit to Russia and meeting with President Vladimir Putin next week. Novak is slated to speak with Japanese Economy, Trade and Industry Minister Hiroshige Seko as well as heads of energy-related Japanese companies.

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