Russia's production nothing to shout about

That is a slight increase from the 2007 figure, which is now projected to close the year at about 9.84 million b/d. That equates to 492 million mt, which is more than a midyear projection of about 490 million mt.

So the forecast for 2008 indicates a jump in output of about 1.3 to 1.4%, in a year when prices for Urals, the country's benchmark export grade, topped out at more than $92/b in late November. What will it take for more production to come out of this country at a faster rate?

Some possible signs of trouble appeared at various times during the year. For example,

-TNK-BP Deputy Chairman George Robertson told the World Energy Congress in Rome in November that Russia's high taxes on the oil and gas industry are jeopardizing key upstream projects. Robertson said Russia's tax structure takes a larger proportion of revenues at high oil prices while inflation and growing input costs are eroding its margins. "There is a real problem operating in the Russian environment at the moment. Margins are being squeezed and this means there is less and less free cash to invest in the future of the oil and gas industry," Robertson said.

--Just today, Platts reported that Russia's crude export duty is likely to exceed $333/mt (around $45.60/barrel) starting from February 1, 2008. The key goal of the export duty is to encourage crude to stay home in Russia for refining, and it is not necessarily clear whether a higher duty discourages immediate production. But it's hard to imagine that a long-range plan doesn't take it into account some way, and it will hurt the attractiveness of a project if the developer knows that production from a field may have high tax hurdles to get across should shipments outside Russia are sought. (In November, primary crude refining in Russia rose by 7% on the year to
4.82 million b/d, following the latest increase in export duties, according to Russia's Federal Statistics Service).

--In a smaller version of the government-directed breakup of Yukos, in August a Moscow court seized 100% of the shares in Russian oil producer Russneft in line with demands from the Russian prosecutor's office, The seizure was is part of an ongoing investigation into Russneft and its founder, Mikhail Gutseriyev, probing allegations of license violations and non-payment of taxes.

Add all of these up and it's a sign of a country that given the price of oil and given its resources would be expected to be growing its output at a far greater rate. But it's not.