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Monday, January 31, 2005

Russian Railways Lobby Alternative Eastern Oil Route

Yukos Heirs:

Although Prime Minister Mikhail Fradkov issued orders in late December to prepare for building an oil pipeline from Eastern Siberia to the Pacific coast, Russian Railways Co. (RZhD) and the Ministry of Economic Development and Trade (MEDT) are drawing an alternative business plan. They intend to organize oil exports by rail: both to China and to the Pacific Ocean.

Full text available by request »»»

Friday, January 28, 2005

Memorandum on Burgas-Alexandroupolis Pipeline to Be Signed on March 15

Картинка к статье Memorandum on Burgas-Alexandroupolis Pipeline to Be Signed on March 15
Financial Control Monitor - An intergovernmental memorandum on the construction of the Burgas-Alexandroupolis pipeline for delivering oil from Russia to Greece is to be signed on March 15, Georgios Salagoudis, Deputy Minister of Development of Greece, said on Friday after a tripartite meeting of the project initiators – Russia, Bulgaria and Greece.
Published:  28.01.2005 16:51 

Thursday, January 27, 2005

Sibneft to Export Oil via Vienna

Картинка к статье Sibneft to Export Oil via Vienna
27.01.2005 17:33  Financial Control Monitor - Sibneft has registered its 100% subsidiary in Vienna to export all of the company's oil that earlier went via an offshore company. Sibneft Oil Trade Company GmbH will be consolidated on the balance of OAO Sibneft. Earlier Sibneft Oil Trade Company was registered on the British Virgin Islands.

Russia's Pipeline Monopoly to Stop Yukos Oil Export for Fear of Legal Action

Photo from MN Archive 27.01.2005 17:59 MosNews - The embattled oil major Yukos and its units have been been completely omitted from Russia's February export schedules, with new owner Rosneft apparently gaining Yukos' port positions. Reuters agency which has acquired a copy of February's shipping schedules reported on Thursday, Jan. 27, that Yukos and its units Yuganskneftegaz, Samaraneftegaz and Tomskneft have been taken off the list. One of the dealers interviewed by the agency said: "They totally got rid of Yukos and its units this time. They are afraid of Yugansk crude getting seized because of any lawsuits so it looks like they are exporting Rosneft volumes and keeping Yugansk oil for domestic supply."

Russia Could Add Pipeline Branch to Supply Oil to China - Chinese Official

Photo from MN Archive Russia may provide oil to China through a branch from a main pipeline despite last year's decision to build the pipeline from East Siberia to the Pacific Ocean port of Nakhodka to supply Japan, said Zhang Guobao, vice-chairman of China's National Development and Reform Commission.Zhang, speaking at a business forum in Beijing, said the Russian government had decided "to export more crude oil to more countries", France Press agency reported. "This doesn't mean that Russia has given up the option of (supplying oil) from a place in Russia to (northeastern China's) Daqing," he said.

Russian Pipeline Giant TMK to Boost Exports to U.S.

Photo from www.crosscounty.orgRussia's pipeline and oil-producing giant TMK revealed plans to boost production further this year and focus more on exports to the U.S. market.
General director Dmitry Pumpyansky told Reuters that his company, which started selling products to U.S. oil and gas clients last year, planned to more than triple pipe supplies to North America this year to 50,000 tons from around 15,000 tons in 2004.


MOSCOW, January 26 (RIA Novosti) - The Russian-based Transneft Co. Increased Russian petroleum exports by 34 million tons last year, reported Semyon Weinstock, company president, while in conference with federal President Vladimir Putin.
The Baltic pipeline net increased its throughput to an annual 55 million tons, as against an initial thirty million.
The company started blueprinting a Far Eastern oil mainline, with a branch to reach China. Its first stage will stretch from Taishet in East Siberia to Skovorodino in the Amur Region's north, to go on to Nakhodka, Russia's Sea of Japan port a hundred kilometers off Vladivostok.
The company has done much to draft and make decisions concerning its Far Eastern project and the Baltic net. It has got down to a northern mainline route, with some blueprints already available, said Mr. Weinstock.
The East Siberia-Pacific pipeline net design complies with Russia's energy strategies for up to 2020, and proceeds from analyses of long-term forecasts of petroleum extraction and consumption in Russia. The work also bases on oil and gas demand in the Asian and Pacific markets.
The Tomsk Region and the Khanty-Mansi autonomous area in West Siberia, and East Siberian oil- and gas-bearing provinces are basic regions to provide resources for the prospective pipeline net.
The project chiefly orients on Asian and Pacific region, that makes the most dynamically progressing part of the world crude petroleum and oil product market. The net is expected to be 4,130 kilometers long.

Tuesday, January 25, 2005


MOSCOW, January 25 (RIA Novosti) - Ukrainian President Viktor Yushchenko believes that the agreement on the reverse of the Odessa-Brody oil pipeline meets Ukraine's interests, but these interests could change with time. In response to journalists' questions, the Ukrainian President said that the construction of the oil pipeline between Odessa (a port on the Black Sea) and Brody (on Ukraine's western border with Poland) has been "a unique project for the past few years." "This project can be perspective if all its components, including transportation to Novorossiisk (a Russian port on the western coast of the Black Sea) function properly," Mr. Yushchenko said. He said that at the time when he was the head of the government, Ukraine financed 58% of the cost of the project. "I could not understand how the finished oil pipeline could stand idly without pumping oil in either direction," he said. According to Mr. Yushchenko, the question of using this pipeline in the reverse direction "was much too politicized." "This is a temporary agreement which meets Ukraine's interests today," Mr. Yushchenko said regarding the recently signed agreement on the reversing of the Odessa-Brody pipeline. "But if tomorrow our interests change and the need appears to return to the initial project, we shall use it as it was initially designed." Ukraine completed the construction of the Odessa-Brody oil pipeline at the end of 2001. Nevertheless, the pipeline, which was designed to pump 14 million metric tons of oil a year to Europe, bypassing the Turkish straits, was not used because Kiev could not find raw material suppliers. Russian companies interested in increasing their oil exports to the European market proposed that Ukraine should use the oil pipeline in a reverse direction - from Brody to Odessa. At first, the Ukrainian authorities declined the proposal. However, on July 5, 2004, the Ukrainian government made the decision toremove limits on transporting oil along the Odessa-Brody pipeline exclusively in one direction. The supervisory council of the Ukrainian oil transportation company, Ukrtransnafta, on July 8, 2004 allowed the company's board to conclude contracts with Russian-British TNK-BP on filling the Odessa- Brody pipeline. The supervisory council approved the signing of the credit agreement, which provided for an annual output of up to nine million metric tons of oil through the Odessa - Brody pipeline in a reverse regime, following the principle: "either transport of pay." Under the terms of the agreement, the Ukrtransnafta company has the right to refuse to pump Russian oil and start pumping Caspian oil. In this case, however, it will have to repay the credit early. The other day, the Ukrainian government annulled its decision that provided for the exclusive routing of Caspian oil through the Odessa-Brody pipeline.

Lukoil, Conoco To Construct New Pipeline

25.01.2005 8:47 [Neftegaz.ru] - Russian oil giant Lukoil plans to build an oil pipeline linking Western Siberia to the nothern Russia's Murmansk region, the vice president Leonid Fedun told journalists at a press conference in Moscow today.
He called this plan “a strategically important route’, since it will give an access to new hydrocarbon markets for Russia. Fedun also expressed hope that the company's new strategic investor, US firm ConocoPhillips, will back the project.

Tuesday, January 18, 2005

Russia Won't Provide Government Guaranteed Loans for Siberian Pipeline Construction

Photo from MN Archive The Russian government said it will not guarantee any loans for a new pipeline project linking Siberian oil fields with the Sea of Japan. The statement was issued three days after talks on the pipeline between visiting Japanese Foreign Minister Nobutaka Machimura and Viktor Khristenko, the head of Russia's Industry and Energy Ministry.


Saturday, January 15, 2005


The Moscow Times, 13 January 2005
Oil pipeline monopoly Transneft is ready to build a pipeline to the Pacific coast, the country's first to Asia, by 2008, the firm said Wednesday after having obtained state approval for the plan.
Transneft said the pipeline was likely to cost about $11 billion and have a capacity of 1.6 million barrels per day. It had previously estimated the link's cost at between $6 billion and $18 billion.
The government in December gave its final approval to the idea of the Pacific pipeline, which will facilitate exports to Japan and the United States and help solve the current pipeline bottleneck.

Central Asian Oil and Gas Pipelines:

Today, Central Asian Oil is transported along two routes: north through Dagestan and Chechnya to Novorossisk, and a second route west to the Georgian port of Supsa. Transport fees have ensured the safety of the pipelines in war-torn Chechnya.
The existing pipelines are only capable of getting a small fraction of the area's oil and gas wealth to market. Central Asian republics are anxious to sell more oil. Americans, Europeans, and Russians are anxious to buy more, especially from countries that do not belong to OPEC. Investors from Saudi Arabia and the United Arab Emirates are also anxious to begin transporting more oil out of Central Asia. Only secure pipelines are lacking. The most promising routes have been identified...
Full story...

Wednesday, January 12, 2005

The Politics of Pipelines

Vasily Zubkov
Economics Takes a Back Seat in Project Decisions

A slowdown in throughput in recent months has meant that Transneft, the Russian pipeline monopoly, has surplus export capacity for the first time in years. While officials at the pipeline major say that this surplus is likely to last at least for the short term, studies by the Siberian branch of the Russian Academy of Sciences suggest that the long-term forecast for oil production may be even more bleak.
But, despite a report from the academy saying that about 60 percent of all proven reserves in Western Siberia, Russia's prime oil-producing region, were near depletion, talk of new pipeline-construction projects continues to swirl around the industry and through government circles.
Part of the reason for this is the obvious importance that the presidential administration continues to attach to monitoring conditions in the energy sector in general. In a system that is sometimes described by analysts as "state capitalism," the government has dramatically increased its involvement in oil and gas questions, as well as those related to the generation of electricity. The Kremlin believes that greater state control is the only way to make the energy sector more effective and viable, end the virtual theft of natural resources, rein in the oligarchs and, in the final analysis, reform the entire economy.
One element of the Kremlin's energy strategy is the expansion of the pipeline infrastructure. But available funds are limited, so the order in which the new lines will be built has become a point of debate - a debate that has often focused more on Moscow's global priorities than on purely economic motives.

A State Matter

This geopolitical factor lies behind repeated statements by both President Vladimir Putin and Prime Minister Mikhail Fradkov that the new pipelines will remain state property and that there are no plans to allow private players - foreign or domestic - entrance into the transportation of oil or natural gas.
The critics of the Transneft system within the oil industry have been joined by liberal economists both inside and outside Russia, who say that the monopoly's infrastructure is inadequate to deal with growing export volumes. But, despite the fact that the oil industry set a new post-Soviet production record, pumping out 9.4 million barrels in one day in September, the Ministry of Industry and Energy says that the country's pipeline system currently has had enough excess capacity to handle all of the oil being produced in Kazakhstan. The ministry says that the system will be able to pump 4.77 million barrels of oil by the end of the year, almost double the capacity it could offer as recently as 1999.
Transneft has been doing just fine under the present conditions, with its profits this year projected to reach $5 billion. But the company's monopoly position continues to be an irritant for the oil companies, who have brought their lobbyists into play both in the State Duma and in discussions with the presidential administration. Yukos, with its proposal for a line running to Daqing, China, was one of the first, but the battle in which the company's leadership is embroiled with the courts, the tax ministry and the government has almost certainly signaled its demise.
A second suggestion, coming from a consortium of companies, was for a joint venture that would construct a line ending at the major northern port of Murmansk. Both proposals ended in defeat for the private companies and Transneft retained its sole position as coordinator and operator of the sector.
Transneft may be the pipeline monopoly, but it is clear that the Kremlin makes decisions for further development in relation to the company. As this edition was going to press in mid-November, the ball remained fully in the Kremlin's court with regard to choosing between three pipeline projects on the table: expansion of the Baltic Pipeline System (BTS); construction of the Eastern Siberian Oil Pipeline (Taishet-Nakhodka); or of the Western Siberia-North pipeline.

New Path to the Baltic

The BTS has a current capacity of just over 350 million barrels per year, which are shipped to the port of Primorsk, on the Gulf of Finland, from the Timano-Pechora field in Western Siberia and from Kazakhstan. A proposal has been made to expand the system's capacity by another 90 million barrels per year. The project, which would involve the construction of one new branch of the line from Yaroslavl to Kirishina, in the Leningrad Region, and another from Kirishina to the existing port at Primorsk, would take 16 months to complete and carry a price tag of $1.4 billion.
The BTS has run into opposition, ostensibly over environmental concerns, from a number of states around the Baltic Sea, particularly Latvia and Estonia. The opening of the existing part of the pipeline removed the necessity for the Russian oil industry to ship via the two Baltic states. Ventspils, Latvia had been the largest port used by the Soviet Union for the export of oil, but it was shut down eighteen months ago, following the opening of the BTS. There is also a modern port for oil transport presently sitting idle in Tallinn, Estonia.
Both Estonia and Latvia have been vociferous in their complaints in the European Parliament over the environmental degradation that they maintain will be caused by the BTS, particularly if it is to be expanded. The Russian government has replied with charges that the complaints are simply sour grapes over the lost revenues as a result of the new transport route, and that the complaints would quickly dry up were Russia to open its Baltic state taps again.
Regardless of the nature of the complaints, the BTS is believed to have the best chance of being selected, as it is the least expensive and time-consuming project under consideration.

The Eastern Siberian Pipeline

The plan to build a pipeline that will run to markets in the east already has a rocky history. Yukos initiated such a project by signing a supply agreement with China for 5.1 billion barrels of oil, to be delivered over the span of 25 years. A feasibility study had already been completed and the details agreed upon with the Chinese government when the project was sidelined, officially because the pipeline ran along the southern shore of Lake Baikal, which is the largest freshwater body in the world and is protected by UN environmental agreements.
Experts believe, however, that the decision to shelve the project had more to do with geopolitical than environmental considerations. Focus on the East has returned to a Pacific outlet, which would allow Russia access to more markets. The government also appeared uncomfortable with the dependence on the Chinese market that the original plan could create. Much of the 2,400-kilometer pipeline currently being discussed would follow the Baikal-Amur railroad line and pass north of the lake, ending at the Pacific port of Nakhodka.
A variant of this plan has emerged that would involve adding a branch running to the town of Skovorodino, near the Chinese border in the Amur region. Semyon Vainshtok, the president of Transneft, recently announced that such a variant would take three and a half years to build and would carry 175 million barrels of oil annually from Western Siberia, part of which would be destined for China, with the remainder transported via Nakhdoka. The exact breakdown proposed with regard to the level of shipments to each destination has yet to be announced.
The most complicated aspect of this project is not the intended route, but whether there will actually be enough oil available for transport to justify the project. East Siberian proven reserves will have to total at least 590 million barrels for the proposal to be worthwhile and the necessary exploration of existing reserves will cost $3 billion to $4 billion.
This price tag is beyond the reach of private oil companies, particularly given the fact that the Natural Resources Ministry says that the total amount spent on geological surveys for the whole country last year was $3 billion. The expected cost of the whole project has been put at $12 billion, meaning that the period to recoup the original investment will be long. As a result, the government will likely opt for a long and careful analysis before any chance of it giving the green light.

Murmansk or Bust?

The proposal to build a pipeline to the ice-free Barents Sea port of Murmansk has been on the table from a consortium of five Russian oil companies for two years. The consortium has already applied to the federal government for the go-ahead and Transneft has received the nod as the general contractor. A decision on the proposal, however, will have to wait until next August, when Transneft is due to present its feasibility study on what is being labeled as the "northern" pipeline.
The government is considering two routes for the pipeline. One runs from the northern Urals Mountains to the Arctic Circle through the city of Ufa, carrying oil from Western Siberia, the polar Urals deposits and the Timano-Pechora oil and gas fields. Of the one million barrels of oil that will be carried per day, approximately 60 percent of the oil will be Siberian. Each plan involves a pipeline 2,000 kilometers in length.

No Room at the Inn

In a bid to ease some of the tension that has been generated by the extended nature of the debate around the future of the northern-pipeline plan, Transneft's Vainshtok has said that it would be pointless to rush the launch of the project as the U.S. market, the intended destination for much of the oil, is currently unable to handle the volume of oil shipments about which the Russian firms are talking, as the Marathon Oil terminals on the U.S. east coast can only handle 110 million barrels of Russia's Urals or Siberian grade oil per year.
Despite this, the route through Mur-mansk appears to pose the fewest difficulties of the available options. Any increase in throughput volumes via the BTS will exacerbate the problems tankers also face in navigating the narrow Danish Straits, while the exploration and development involved in bringing the Eastern Siberian project on line will require a huge investment.
The strange paradox is that with the possibility that the present slowdown in shipments could turn into a long-term development, one or more new pipelines might do little, if anything, to increase export volumes. The recent pipeline has allowed Russian firms to cut transport costs, while simultaneously increasing the state's revenues from exports. Perhaps most importantly, they have underpinned a rise in Russia's geopolitical influence, the consideration that may have the greatest bearing on decisions about further construction.

Oil transportation through Caspian pipeline surges

RBC, 12.01.2005, Moscow 12:09:30.Oil transportation through the system of the Caspian Pipeline Consortium (CPC) in 2004 increased 1.52 times to 22.5m tons from 2003, the company reported. The annual pumping volume is expected to reach 32m tons this year. Some 2.76m tons of oil were pumped through the system in December. At present, shareholders in CPC are agreeing upon the details of expanding the system's capacity.

Tuesday, January 11, 2005

PM endorses pipeline from Siberia to Pacific Ocean

RBC, 31.12.2004, Moscow 15:44:24.Prime Minister Mikhail Fradkov has signed a resolution on constructing an oil pipeline from Eastern Siberia to a seaport in the Russian Far East. The total capacity of the Eastern Siberia-Pacific Ocean pipeline will be about 80m tons of oil a year, the government's press service reported.

      The Natural Resources Ministry of Russia has been instructed to work out a program of geological exploration of hydrocarbon deposits in Eastern Siberia and the Far East and distribution of licenses to use these deposits in cooperation with the Industrial Production and Energy Ministry and the Economic Development and Trade Ministry of Russia, and to submit this program for approval.



MOSCOW, (RIA Novosti economic analyst Vasily Zubkov)

The first quarter of the year has shown that Russia will produce 440 million tons of crude oil this year (compared with 421 million tons in 2003). Of that amount, 242 million tons will be exported. But these figures are still way below what Russia produced in the mid-1980s - 570 million tons. We are having not so much growth, as regaining old positions.

Current debates in the government and among economists concern the optimum annual crude production figure. The lower level is believed to be 450 million tons, and the upper, 500 million tons. The ultimate figure will depend on world crude prices, demand, and potential investments in the oil branch.

Former Energy Minister Igor Yusufov said that $13 billion was invested directly into the Russian oil sector last year. In the next 7 to 10 years, believes Yuri Shafranik, chairman of the Russian Oil and Gas Producers' Union, new deposits in the North, Siberia and the Far East will require $30-35 billion in investments annually. At the ruling oil prices this is feasible. No slump in demand is yet seen.

But there is a factor which determines if crude output in Russia will grow - the resource of its pipeline system. And although, according to state-owned Transneft vice-president Sergei Grigoryev, pipelines inside and outside the country handle 600 million tons annually, the operator has been sufficiently harshly criticised by Russian oil companies. Neither Transneft's tariff policy, nor where its export pipelines go, nor access priorities suit them.

Behind these demands of oil companies one can easily discern a wish to remove a state monopoly in the pipeline sector and acquire this very profitable business for themselves. It may be recalled that last year YUKOS wanted to build its own oil pipeline from Angarsk to China's Daqing, while a five-company consortium lobbied plans for a private pipeline from European Russia to the non-freezing port of Murmansk.

Premier Mikhail Fradkov drew a line under the debates by saying that there will be no private pipelines in Russia. He also added that the country's existing oil transport infrastructure is Russia's competitive edge. According to the premier, the oil sector is the "hen laying golden eggs". And the government will accordingly make these pipelines more efficient, extend their network, and provide ground facilities in a rational way.

But what are the factors that will help boost Russian oil production in the next few years and how this growth is to be matched by the pipeline infrastructure? First, we expect the Timan-Pechora oil and gas province's group of fields to go into full commercial operation (the province is situated in the north-east of European Russia). Thirty million tons a year is a realistic figure. Second, within the foreseeable future we will start producing oil in eastern Siberia and Sakhalin - 50 to 60 million tons a year.

Timan-Pechora gravitates towards both the existing transport arteries - the Baltic Pipeline System (BTS) - and the ones planned towards Murmansk.

East Siberian oil will naturally flow eastwards, to the Pacific port of Nakhodka. Especially since in the middle of March environmentalists gave the green light to the so-called "northern" export route (Taishet-Nakhodka).

The press also describes it as a "Japanese" one, although Russian authorities, keen not to be committed, have repeatedly stressed that the Pacific pipeline is to be laid to export oil to APR markets in general.

The route running south of Lake Baikal was vetoed by environmentalists as one conflicting with nature protection legislation (since it was to have passed through the Tunkin national nature park). But it is said at Transneft, it will be not difficult to lay a feeder towards Daqing. The only requirement is a desire ... and sufficient quantity of crude. Russia's Pacific ports, including those on Sakhalin, will be shipping up to 80 million tons of oil a year.

The second most important oil export direction is the Baltic one. Its current throughput capacity - 42 million tons - is planned to be raised to 60 million tons in the next couple of years, although the problem of shallow and difficult Danish straits is already looming. Transportation through the Baltic Sea cannot be built up indefinitely. The first alternative will be a pipeline towards Murmansk. No decision has been made yet because work on the project is still not finished.

But before millions of dollars' worth of pipes are laid into the ground, the designers hit upon an original solution. Rosneft has chartered from Norway a tanker called Berge Pioneer with a displacement of 360,000 tons. It hired it for a period of 20 years and positioned it in Kola Bay near Murmansk. Smaller shuttle tankers will be delivering oil from Timan-Pechora and the Prirazlomny and Vankorsky deposits to this floating accumulating terminal. In that way, every year up to 5-6 million tons of crude can be reloaded into 300,000-ton supertankers.

Rosneft is planning first to ship oil to Rotterdam. But according to its press-service spokesman, the possibility is also being examined of exporting oil to the US. The new terminal is already accepting oil from other Russian companies, particularly LUKoil.

The Black Sea outlet also remains important for Russian oil exports. Annually it handles up to 100,000 million tons of crude and refined products from Russia, Kazakhstan and Azerbaijan. The Caspian Pipeline Consortium (KTK) alone ships 28 million tons via Novorossiisk. Passage through the Bosporus has, however, become critical for Black Sea tankers in recent years. Turkish authorities allow them to pass only during the daytime. Shippers lose considerable sums of money from days of waiting outside the straits. Chartering becomes prohibitively expensive. How to untie the "Turkish knot"?

Transneft seems to have found an effective solution. It is now working on plans for a transit pipeline from the Black Sea to the Mediterranean through Turkish territory and bypassing the straits. Patently profitable to all parties though the new pipeline is, there are doubts if the Turks agree to its construction. They (and the US), being the main political driving force behind the Baku-Tbilisi-Ceyhan pipeline now under construction, would rather welcome Russian and Kazakh oil being pumped through the BTC than unstopping the plugs in the straits.

But Russia's current Minister of Industry and Energy Viktor Khristenko has said that Russia does not consider the option of transporting oil through the Baku-Tbilisi-Ceyhan even in the context of strait risks. On the other hand, Moscow and Tehran are against the idea of laying a trans-Caspian pipeline which could deliver Kazakhstan's oil to Azerbaijan and further on to the BTC, Viktor Kalyuzhny, Deputy Foreign Minister and special presidential envoy on the Caspian status, said the other day. In his view, such initiatives should be carefully coordinated with all littoral states. "Runaway construction of trans-Caspian pipelines may turn sour because of high seismicity of the terrain and the unresolved status of the Caspian," he believes.

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