Russian oil industry roaring back

Lukoil sells gasoline, diesel fuel, natural gas, motor oils and other auto products

PERM, Russia (CNN) -- At the eastern edge of Europe, in the foothills of the Ural Mountains, lies one of European Russia's richest deposits of oil.

It's here that Lukoil-Perm -- a subsidiary of Russia's largest oil company, Lukoil -- is drilling for the life-blood of Russia.

Last month, Russia officially became the world's biggest oil producer with seven million barrels a day -- edging out Saudi Arabia at 6.9 million.

That record may not last, but there is no doubt Russia is well on its way to winning back the position the Soviet Union held in the 1980s when it was the world's No. 1 producer.

In the early 1990s, Russia's oil industry was collapsing. But in just the past two years, Russia has increased production faster than any other country.

CNN NewsPass VIDEO CNN's Jill Dougherty reports on Russia's quest to become the world's No.1 oil producer (March 25) Play video

It's now ready to challenge OPEC, setting its sights on becoming the key oil supplier to the West.

"The big issue is lowering the cost of production," says Vladimir Sherbyak of Lukoil-Perm.

"In Russia, the average cost of producing a barrel of oil is $8 to $10. Internationally, it's $3 to $4. Lukoil-Perm is getting close to that, but we've got a lot of work to do."

At Perm, workers drill 2,100 metres (6,300 feet) into the earth -- hard work, but it promises to pay off. Experts say one field alone here holds 19 million tons of oil. It could take 35 years to pump it all.

"There are just a few places like this on Earth," says oil driller Alexander Dubovtsev.

"The soil is filled with calcium chloride which they also mine here. You have to make sure you don't erode that salt. So we're working in very difficult conditions."

But drilling is just the beginning. In the past two years, Lukoil has invested in new technology, including "horizontal" wells.

On the surface, all that's visible is one well. Below the surface, the well branches in several directions to tap into mulitple deposts, increasing productivity by two to three times. The entire operation, from pumping to refining, is controlled by computer.

Another key to Lukoil's success is vertical integration; the company sells not only crude oil but gasoline, diesel fuel, natural gas, motor oils and other auto products.

Last year, Lukoil bought America's Getty Petroleum Marketing -- the first major U.S. company to be purchased by a Russian firm.

As Russia's largest oil company continues to grow, workers like Svetlana Kuznetosova are living better.

She earns $430 a month -- more than four times what the average Russian makes -- and she wants that to continue.

"We depend on our salaries," she says. "We want our workers to earn money, so we're (in favor of) producing oil."