By John Helmer in Moscow
Russians out-play Saudis as Gazprom calls for OPEC replacement.
The view from British Petroleum’s front-window on to St. James Square in London is an irony BP Chairman Peter Sutherland and Chief Executive Tony Hayward have not noticed; at least not yet.
In the middle of the gated garden, there is a fine statue of William of Orange, the Dutch champion of Protestantism, who became King William III, and, by reputation, rescued the English from a Roman Catholic dynasty, and all manner of French and popish plots.
William is mounted on a fine horse. The plaque fails to mention that William met his death when he fell from the horse; broke his collar-bone; contracted pneumonia; and promptly expired. Because the horse tossed the king after stumbling in a mole’s burrow, William’s enemies used to toast “the little gentleman in the black velvet waistcoat”.
This is a story of one of the most spectacular stumbles and falls from the saddle in recent Russian business history. But before we come to the part where BP’s horse hits the mole-hole, tipping his rider, it’s necessary to look at Gazprom, as Chief Executive Alexei Miller rides in on his white charger.
In office now for seven years, the 48-year old Miller, who started with a PhD in economics, has never been the talkative type. Nor has he sought out the global media to amplify the way he feels.
And so it was quite uncharacteristic when, on June 9, at an energy conference in France, Miller said: “Today we witness a very great change for hydrocarbons, the level is very high, and we think it [the price of oil] will reach $250 a barrel.” This remark immediately hit the deadlines, as much for the source of the forecast, as for the price itself. Although Gazprom’s oil division (formerly Sibneft belonging to Roman Abramovich) produces just over 1 million barrels of crude per day (about 11% of total Russian output), never before has Gazprom, the world’s biggest gas producer and exporter, issued a forecast for the price of oil.
It is difficult to gauge the impact of Miller’s number. The oil market rose 8% on June 9 to $138.54. It then fell 3% on June 10 to $134.35. But more important than the seesawing price was Miller’s intervention. For it now appears Gazprom has decided to put public pressure on global oil and gas markets to look to Russia, instead of to Saudi Arabia, for the future of oil and gas pricing.
Saudi Arabia followed with an announcement that it would add 200,000 barrels per day (bpd) next month to the 300,000 bpd production increase initially announced in May. The kingdom then called a special session of OPEC in Jeddah over last weekend.
Miller followed this week with the public comment that OPEC’s influence on the global oil market has been dwindling. Stating the obvious isn’t always obvious, so Miller then called for a new, smaller structure to replace OPEC, intimating that Russia will replace Saudi Arabia as the swing producer.
OPEC-2, according to Miller’s statement to a Russian publication, would “consist of fewer players, but the structure will be more flexible and capable of really influencing the market.” Recently, he added, OPEC “hasn’t made a single decision that substantially influenced the market. Clearly cartel structures are also evolving.” Regulating the oil price, Miller suggested, is a higher priority for Gazprom than establishing a gas producers’ cartel.