Putin’s reward for doing a deal with OPEC overshadowed by risks

Bloomberg reports: Neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC and cut oil output to boost prices. His reasons may be pragmatic rather than political.

Russia’s Energy Minister Alexander Novak and his Saudi Arabian, Venezuelan and Qatari counterparts agreed to freeze output at January levels on Tuesday. The world’s second-largest crude producer faces numerous obstacles to any deal that would actually cut production, even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.

In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius (minus 40 Fahrenheit). That’s a challenge for anyone thinking of turning off the taps.

The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked for more than 10 years in the Russian oil industry, said by e-mail. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues, he said.

Production from a shut-in well might never be restored in full, Maxim Nechaev, director for Russia at consulting firm IHS Inc., said by phone. [Continue reading…]

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