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Russia's oil pipe dreams
By CNN's Moscow Bureau Chief Jill Dougherty
MOSCOW, Russia (CNN) -- If the U.S. leads a "coalition of the willing" into a war with Iraq the flow of oil from the Middle East could become erratic, at least temporarily. But in the snow-covered oil fields of Russia there is nothing producers would like to do more than help to fill that gap in world oil markets. Russia is the world's second-biggest oil exporter after Saudi Arabia and produces more than eight million barrels a day. President Vladimir Putin promised a year and a half ago to fill any void left by war. "Russia stands ready to increase oil exports in case of world conflict," he said in a speech in Germany. But could Russia really become the saving grace of oil-consuming nations? Or is it just -- a pipe dream? "In the short run, no it couldn't," said Stephen O'Sullivan, an oil analyst at the United Financial Group. "It's already producing at capacity. Production is growing eight percent a year. So that's clearly very positive. But it doesn't have any spare capacity, unlike Saudi Arabia which has several million barrels a day of spare capacity and can act as a swing producer, stepping in where necessary." For the past five years, Russian oil production has been booming but when it comes to getting oil out of the country -- that is where it gets complicated. "The basic problem we have is not development of oil fields. We have more than sufficient reserves. It's the means of transporting that oil," said Leonid Fedun of LUKOIL, Russia biggest oil producer. Russia produces about 10 percent of the world's oil output but can only export less than half of its oil output through the state-owned pipeline. The country does hope to become a stable alternate energy supplier to the United States, with LUKOIL predicting that Russia could supply the U.S. with 13 percent of its oil by 2010. But that requires new infrastructure and major investment and that is still in the future. BP, Europe's second-largest oil company, has seen the potential. It agreed last month a $6.75 billion deal with Russian group Tyumen Oil to create Russia's third-largest oil and gas company. The deal is expected to lessen BP's dependence on Middle East oil. A disruption in Iraqi oil could have one major benefit for Russia: rising oil prices would mean a tax windfall for the Russian government. Several major Russia oil companies plan to build a new oil terminal in Murmansk, in the Barents Sea, to ship oil more easily to the U.S. The Bush administration is keen to lessen its dependence on Middle East oil. In May, 2002, the U.S. and Russia announced they were launching an "energetic dialogue" to look at ways of boosting Russian oil exports to the U.S. So much as Russian oil companies might dream of filling the gap if Middle East oil exports temporarily dry up they cannot. The only country that can really do that -- according to the experts -- is Saudi Arabia.
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