Pipeliners

Tuesday, March 22, 2005 Bloomberg - Russia should delay construction of a $15.5 billion oil pipeline to the Pacific coast and instead use existing railways until more crude is pumped in eastern Siberia, Transportation Minister Igor Levitin said Monday. Hauling oil to the Pacific coast by pipeline will become commercially viable only after Russia starts sending more than 55 million tons of oil per year (1.1 million barrels per day) in that direction, Levitin said, according to a transcript of a speech he gave in Moscow. "Shipping this amount of oil will only become possible in 12 or 15 years," Levitin said. "We need to use railways for a longer period, taking into consideration the gradual nature of oil exploration in eastern Siberia." Russia pumps most of its oil in western Siberia and mainly exports to Europe. The Pacific pipeline is a cornerstone of its plan to diversify exports of crude, starting deliveries of the fuel to Asia and the United States. Russia currently sends by rail to China about 137,000 bpd of crude extracted in western Siberia. Russian Railways, or RZD, plans to invest $1.4 billion to upgrade links to China, allowing the country to more than triple crude oil exports to China. The government should nominate "key suppliers of crude oil [to China], who would commit to guaranteed oil cargoes by 2010 on the ship-or-pay basis," Khasyan Zyabirov, RZD first deputy chief executive, said Monday in a statement. To send 55 million tons of crude per year to the Pacific coast, Russia would need to pump in eastern Siberia at least 30 million tons per year (600,000 bpd), Levitin said. The 4,200-kilometer oil pipeline to the coast will need between $11.5 billion and $15.5 billion in investment, according to oil pipeline monopoly Transneft. Rail shipments of oil would enable Russia to use its Trans-Siberian and Baikal-Amur railways at 100 percent capacity, compared with 60 percent now, Levitin said. The Soviet Union built the Baikal-Amur railway, or BAM, in 1980s, in an effort to move the railway farther from the Chinese border. The railway, which cost the Soviet Union more than $20 billion, now has a loss of $94 million per year, Levitin said. In 2003, Russia said Japan had offered as much as $7 billion in loans and investments if the country chose the pipeline to the Pacific instead of a $2.8 billion route to China backed by Yukos. Resource-starved Japan now relies on the Middle East for about 90 percent of its oil imports and hopes to secure alternative crude oil supplies. "The creation of the eastern Siberian oil pipeline system, with the direction from Taishet to the port of Nakhodka with a possible branch to China, remains a priority project," Deputy Economic Development and Trade Minister Andrei Sharonov said in a statement. Russia used railways to export 40 million tons of crude oil and 66 million tons of oil products last year, Levitin said. About 87 percent of the cargoes were shipped to the country's western border and ports, while the rest was transported either to China or Far East ports, according to RZD.