Pipeliners

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.

ARCHIVES

NEW ROUTES FOR RUSSIA'S OIL PIPELINES

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.

# posted by Deval : 3:03 AM