Lukoil May Switch to Oil, Gas Sales in Rubles in 2009
Halia Pavliva and Torrey Clark – Bloomberg December 12, 2007
OAO Lukoil, Russia's largest independent oil producer, may start selling crude and gas in rubles within two years as the U.S. dollar weakens, a company official said.
``Selling for rubles is much more attractive,'' Deputy Chief Executive Officer Leonid Fedun said in an interview in New York today. ``Gazprom is considering introducing ruble- denominated contracts and I think that technically Russian companies can do it by 2009 if the banks are ready.''
Lukoil, which is based in Moscow, joins state-run OAO Gazprom, the world's largest natural-gas producer, in suggesting a move to ruble pricing. State-controlled OAO Rosneft is the country's biggest oil producer.
The dollar has dropped 10 percent this year against the euro, reducing the value of exports. OPEC members Iran and Venezuela have lobbied to abandon the dollar, a step Saudi Arabia rejected last month at a meeting of the group's ministers.
Russia is the world's second-biggest producer of crude oil. Crude has surged 54 percent this year, contributing to an increase in inflation that Russian President Vladimir Putin calls one of the biggest threats to a nine-year economic expansion. Lukoil has said the strengthening ruble eats into profits because costs are denominated in the local currency.
The ruble has gained about 8 percent this year to 24.43 per dollar, while it has lost 3 percent versus the euro. Russia's central bank manages the currency against a basket of the euro and the dollar. The dollar has dropped this year amid the worst U.S. housing slump in 16 years.
Putin has sought to bolster the country's international standing as an economic power by leveraging its energy resources. A move to price oil in rubles could lend support to the government's plan to create domestic exchanges, some analysts said.
``You get an exchange out there that trades in rubles and you've got it made, but that's a big step,'' said Allen Humbolt, an analyst in Tulsa, Oklahoma, with Samson Investment Co., an oil and gas exploration company. ``You have to get the world to trust that the money doesn't disappear. Would there even be enough rubles?''
Alexander Medvedev, Gazprom's deputy chief executive, said last month the company may start selling its crude and gas production in rubles rather than dollars and euros. The company hasn't given a timeframe.
`Blow' to Dollar
Fedun also told reporters in New York today that the Organization of Petroleum Exporting Countries may switch to using a basket of currencies as early as 2009, ``which will be a blow for the dollar.''
Saudi Arabia, the world's largest oil producer, fought off an attempt last month by Iran and Venezuela to get OPEC to discuss pricing oil in different currencies rather than in dollars. OPEC ministers met in Riyadh last month.
Saudi Arabia will continue to price crude in U.S. dollars, the country's foreign minister said yesterday.
``The dollar remains the only currency for pricing oil,'' Saud al-Faisal said at a press conference broadcast on Al Arabiya television.
Given Saudi Arabia's stance, any shift by Russian oil and gas companies to price in rubles wouldn't affect the dollar, said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co.
Russia's annual inflation will accelerate to 11 percent this year, above the central bank's forecast of 8 percent, the Paris-based Organization for Economic Cooperation said in a report on Dec. 6.
``Dollar inflation is very high,'' Andrei Gaidamaka, director of strategic development at Lukoil, said today in New York. With the dollar sinking against the ruble, it's ``double the problem.
Last updated 15/12/2007