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Oil Remains King in Russia, But for How Long?

One of the major topics of conversation at the just-concluded economic forum in St. Petersburg, Russia, was energy, specifically oil and the situation in the Gulf. That’s not surprising, as Russia is very rich in oil, natural gas and other commodities.

Russia
Frans Lemmens | The Image Bank | Getty Images
Russia

Russia is actually the world’s largest energy exporter, so oil and natural gas are critical to the economic growth of this country.

The economy there grew 2.9% on an annualized basis in the first quarter, and current expectations are for about 4% growth in 2010. That is in stark contrast to 2009 when the economy contracted by 7.9%, the worst performance since Communism collapsed there in the 1980s.

In fact, the country is so dependent on oil and natural gas that it is trying to wean itself off of them and generate growth in other areas. One area of emphasis is technology. A mini Silicon Valley is being built right outside of Moscow, and Russian President Dmitry Medvedev is expected to talk about U.S.-Russian cooperation in technology when he meets with President Obama this week.

But for now, oil remains king, and high-profile oil-company CEOs attended the forum. Many of them had testified on Capitol Hill last week and then made their way to Russia to talk about oil demand and the global recovery. BP CEO Tony Hayward canceled due to his testimony on the Hill, but the tragic spill in the Gulf was still on everyone’s minds.

James Mulva, CEO of ConocoPhillips, told me that the response has been inadequate, and that technology needs to be developed to insure a better response in the event of future spills. (You can watch my interview with him here.)

There remains great interest in the Gulf, in part because it is more profitable to drill there versus many other places in the world.

One analyst told me that BP makes about three times the amount on a barrel of oil from the Gulf as opposed to a barrel from, say, Russia. That’s because they pay a flat royalty in the Gulf but a lot more fees and taxes in Russia.

I also continued to hear a lot of talk about shale gas and how plentiful it is around the world. As we’ve talked about before in Investor Brief, I’ve been told that developments in shale gas could result in dramatically lower oil prices in the future — so much so that some say it could threaten the likes of Gazprom, the gas and oil giant that is Russia’s largest company, and also happens to be owned by the state.

It was another fascinating trip to Russia, and the subjects of oil and energy took on greater importance and urgency because of the situation in the Gulf. In addition, there were plenty of other important issues discussed, such as modernizing Russia, building out technology, investing in infrastructure and education, and more. I’ll update you on these developments soon.

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