Russia will not cut oil and gas production, Putin says

Russia has no intention of cutting its production of oil and gas and will probably increase it, President Vladimir Putin said at the weekend. But he denied that this would increase the country's dependence on energy exports, maintaining that the Russian economy was proportionately less reliant on exports of oil and gas than it was when he came to power eight years ago.

Mr Putin was answering questions from foreign Russia-watchers at his summer residence near the southern resort city of Sochi.

What had prompted a response that should reassure Russia's Western customers, at least in the short term, was a comment by a senior official two days before to the effect that Russia's oil and gas bonanza was almost as much trouble as it was worth. He had said that, while Russia had benefited hugely from the high energy prices of recent years, these had also created problems. Because the Russian economy simply could not absorb so much money productively in such a short time, the government had to spend much specialist time and energy on how best to use it.

A proportion goes to the "stabilisation fund", now standing at $130bn, seen as an insurance against energy prices falling. Another share goes into an "investment fund" for infrastructure projects, higher pensions and public service salaries. What is left over is invested abroad, much of it in foreign bonds, to be as safe as possible. Russia's foreign investment policy was, the official said, deliberately"conservative".

The official also said that Russia was looking to invest more in foreign companies, and would already have done so but for what it saw as unwarranted suspicion of Russia's intentions and closet protectionism on the part of foreign governments.

It was in this context that a participant in the discussion with Mr Putin asked this question: Why, if Russia found administering its new oil and gas wealth so burdensome, did it not consider cutting production? Keeping the stuff in the ground, he suggested, would have several beneficial effects for Russia. It would raise the world price, so yielding more money for less effort. It would, assuming no dramatic fall in prices in the near future, guarantee Russia a good income for many more years. And it would save ministers the time and effort involved in figuring out how to invest its windfall.

The question clearly appealed to Mr Putin. He smiled and described the proposition as interesting, as he seemed to turn it over in his mind. But his response was categorical. "We will extend and increase production of both oil and gas, and we will do that because global demand is growing."

He said that Russia had no intention of banking on further rises in energy prices. "We remember that there was a time when coal was the main source of energy, and then all at once the price fell sharply. What good would come of speculating?"

Russia, he said, "wants to behave responsibly" – not for its own sake, but because "harmonious relations" with the rest of the world was as much in the national interest as high energy prices.

Apparently alluding to Western charges that Russia used its position as an energy supplier as a weapon, Mr Putin said that Russia had never "blackmailed" the world market. He went on: "We are not a member of Opec – though we keep a close eye on what it does – and one reason is that we don't have the level of state monopoly over energy production that most Opec countries have."

We, he said, have Gazprom and Rosneft, the huge state-controlled gas and oil conglomerates, "but the rest are all private companies with foreign investors". It was, in his words, a "free market and open sector".

The exception, the Russian President said, were the pipelines, which would remain a state monopoly for as long as there were different price tariffs for domestic and foreign customers.

He indicated, however, that this would change. "The domestic price will rise, and we will also try to diversify energy sources at the same time."

Russia's differential energy pricing has been a major obstacle to its joining the World Trade Organisation. Mr Putin did not allude to this, however, and WTO accession seems now to be less of a priority for Russia than it was a year ago.

In a conversation a few days earlier, Sergei Ivanov – whose official title, "acting first deputy prime minister" masks his significance as the man widely tipped to succeed Mr Putin – had lamented Russia's inefficient use of energy and its profligate approach to energy consumption. He outlined ambitious plans almost to double the number of power stations by 2030, while increasing production of hydro and nuclear power. The necessary funds, he said, had already been earmarked from the country's central "investment fund".