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Tuesday, May 31, 2005

Yukos, Surgutneftegaz to use eastern Siberian oil pipeline

MOSCOW, May 31 (RIA Novosti) - Industry and Energy Minister Viktor Khristenko told President Vladimir Putin yesterday that Yukos and Surgutneftegaz would provide oil for the Eastern Siberia-Pacific pipeline, today's issue of Gazeta, a daily, reported. Discussions around the Eastern Siberian oil pipeline had continued for six years, but the project's first stage should now be completed in 2008. Oil major Yukos initially wanted the pipeline to go from Angarsk to Daqing, China, as it saw China as the main oil importer. However, Transneft, another exporter, took the view that the pipeline should go to the Pacific port of Nakhodka and the number of prospective customers had to be increased. Prime Minister Mikhail Fradkov endorsed the final pipeline route in late 2004. It will stretch from Taishet in Siberia's Irkutsk region toward the Skovorodino district center in the Amur region, eventually reaching Perevoznaya harbor in the Maritime territory. This route, which will diversify oil-sale markets, has some drawbacks. It will pump 80 million metric tons of oil per year. However, existing Eastern Siberian deposits will make it impossible to fill this pipeline to capacity. Rosneft, which has signed an oil-supply contract with China, can hardly provide enough oil. Moreover, this state-run company would have to renounce its European oil exports and domestic market sales if it opts for the Asian market completely. The selection of Yukos and Surgutneftegaz was no coincidence. First, their assets are located near the projected pipeline. Second, Russian officials will control all oil-sale proceeds, which at today's prices would exceed $27 billion. Market players think that Surgutneftegaz is already controlled in the interests of high-ranking Russian bureaucrats and Rosneft may acquire Yukos assets in the near future. The state-run company is a major Yukos creditor and has won more than $2 billion from it in court. This sum total may grow five-fold, thereby enabling Rosneft to take over Tomskneft, a Yukos subsidiary, in exchange for debts. Therefore, the paper said the state would have solved its problems: it would have found enough oil for the pipeline and maintained exports currency earnings.

Monday, May 30, 2005


MOSCOW, May 30 (RIA Novosti) - The first section of the so-called Eastern pipeline linking the Taishet oil field (East Siberia) with the port of Nakhodka (Far East) will be completed in 2008, Russian Industry and Energy Minister Viktor Khristenko said at President Vladimir Putin's meeting with government members. The pipeline blueprints should be ready in July 2005, he added. The government made a decision on the construction of the Taishet-Nakhodka pipeline on December 31, 2004, Khristenko said. On April 26, 2005, the Industry and Energy Ministry signed a decree on the stages of the pipeline construction coordinated with the Ministry of Natural Resources and Economic Development and Trade Ministry. "The first section of the oil pipeline will link Taishet in the west with Skovorodino (a town in the Amur region, 75 kilometers north from the Russian-Chinese border) in the east," Khristenko said. "The capacity of the first section is 30 million tons. It will be loaded with West Siberian oil," he added. According to the minister, "the construction of a synchronous oil-filling terminal which can pipe 30 million tons of crude oil is a key aspect of the first stage." An oil-loading rack is being built near Skovorodino to load oil into tank cars and bring it to the oil-filling terminal, Khristenko said. Surgutneftegaz and Yukos having oil fields in East Siberia may join this project in the future. It will synchronize activities of oil producers to let them see the capacity of the second section from Skovorodino to Nakhodka (a port on the western coast of the Sea of Japan 90 kilometers to the east of Vladivostok). "The Ministry of Natural Resources is to complete the coordination of the program on the use of East Siberian oil fields which have not been distributed yet. These fields should form the basis of the functioning of the second section of the Eastern pipeline," Khristenko said. The existing capacities of pipelines linking West Siberia with Taishet will be extended to 30 million tons, he added. It will be done by means of attracting resources without special decisions of the government and preferential measures. President Putin, in turn, said that the pipeline construction plans should be synchronized with intentions of the Russian Railways company to increase cargo traffic on this direction. Meanwhile, Japan can refuse to finance the East Siberian-Pacific pipeline if Russia decides to build a branch line to China first. Japanese Minister of Economy, Trade and Industry Shoichi Nakagawa said: "If the pipeline is stopped halfway it may never reach Japan. I told Russia that we would not be able to spend money of our taxpayers on such a risky project."

Thursday, May 26, 2005

Baku-Ceyhan Pipeline Opens to Caspian Oil

05-26-2005 Reuters By Lada Yevgrashina - Oil started on Wednesday to flow into a U.S.-backed pipeline which will carry Caspian oil to the West and loosen Russia's stranglehold on exports from the region. The pipeline, built by a multinational consortium led by British oil giant BP, will eventually pump more than 1 million barrels per day from Azerbaijan along a circuitous route through Georgia to the Mediterranean port of Ceyhan in Turkey. The venture is helping to redraw the geopolitical map of the turbulent Caucasus, reducing the region's economic reliance on Moscow, and will also give emerging oil giant Kazakhstan an outlet to Western markets that bypasses Russia. Oil experts say the landlocked Caspian Sea contains oil riches to rival those of the North Sea, but others say it may never fulfill its promise. "With the start-up of this oil pipeline, the economy of Azerbaijan makes a serious step forward," said President Ilham Aliyev at a launching ceremony for the pipeline. Also attending the ceremony were President Mikheil Saakashvili of Georgia, Turkish President Ahmet Necdet Sezer and Kazakh President Nursultan Nazarbayev, all of whose countries stand to gain handsomely from the new pipeline. U.S. Energy Secretary Sam Bodman, who stood alongside the four heads of state at the ceremony, said: "The Baku-Ceyhan pipeline will play a huge role in world energy policy." It will take until the fall before oil can be loaded onto tankers at the Mediterranean end of Ceyhan because BP needs several months to fill up the 1,760-kilometer pipeline. Kazakhstan, the largest oil producer in the region after Russia, is likely to start pumping oil through the pipeline at a later date by shipping it from its Caspian port of Aktau to Baku by tankers. In the opening ceremony, Aliyev explicitly recognized Washington's crucial role in championing the $4 billion pipeline in the face of opposition from Moscow. "The realization of this project would not have been possible without constant political support from the United States," he said. Since the Sept. 11, 2001, attacks on the United States, completion of the pipeline had taken on increased importance as U.S. concerns deepened over dependence on Middle Eastern oil. The launch of the pipeline is one more step diminishing Russia's waning influence in a region which was firmly under its thumb in the heyday of the Soviet Union. "The implications for Russia are a further loss of influence in Azerbaijan and potentially in Georgia too," said Julian Lee, an analyst at the Centre for Global Energy Studies in London. Azerbaijan, which currently produces more than 350,000 bpd, plans to raise output to more than 1 million bpd by the end of the decade. The start-up of the pipeline gives a boost to Aliyev, who is facing a tricky parliamentary election in November in a turbulent region that has seen several longstanding regimes toppled in popular revolts over the past 18 months. Georgia's impoverished economy also stands to get a boost from the pipeline and is expected to earn some $50 million in transit fees per year.

Revolutions in the Pipeline

Photo: Reuters05-25-2005 Kommersant - Today, there will be a special ceremony in Baku for the opening of the Baku-Tbilisi- Jeikhan pipeline. This event should end a10-year-old political controversy around the oil pipeline. Besides, the launch of the pipeline might become a catalyst for new changes in Central Asia and Caucus that could possibly lead to new "color" revolutions.
The four-way holiday
Three years ago, a ceremony for the start of construction in Baku brought together three presidents -- Geidar Aliev of Azerbaijan, Eduard Shevarnadze of Georgia and Ahmet Necdet Sezer of Turkey. From this trio, only the Turkish president participates today in the opening. Also, there is one more participant joining the leaders – the president of Kazakhstan, Nursultan Nazarbaev. He arrived yesterday in Baku on an official visit to participate in today's ceremony. After the negotiations with Azerbaijani Prime Minister Artur Rasizade and President Ilkham Aliev, Nazarbaev made a historical statement: Kazakhstan will join the oil pipeline Baku-Tbilisi-Jeikhan.
Until now, Azerbaijan and Kazakhstan had an agreement about the yearly transit of 20 million tons of oil through this pipeline. However, the passing capacity of the Baku-Jekhan pipeline was estimated at 85 million tons. Considering that the oil production in Azerbaijan should start falling soon, Kazakhstan's link to the pipe was of utmost important. Nazarbaev announced yesterday that his country will be increasing oil production. By the year 2010, Astana expects to produce 100 million tons and by 2015 it hopes to reach 150 million ton. In the nearest future, Kazakh oil will be delivered to Azerbaijan by tankers although Nazarbaev's statement hints that the two leaders reached agreement to build the pipeline through the Caspian Sea connecting the two countries.
Right after Nazarbaev, Georgian President Mikhail Saakashvili arrived in Baku. He was in the most celebrating mood compared with the other presidents. He said that the launch of Baku-Tbilisi-Jeikhan and in next year another pipeline Baku-Tbilisi-Erzurum "will make the whole region, including Georgia, fully energy independent."
The pipeline will start to be used commercially by the end of this year. So far, it is slowly getting filled up with oil. Once the pipe becomes commercial, all Caspian states will start to feel the political consequences of the first major project after the dismantling of the USSR.
The end of fight
The Baku-Tbilisi-Jeikhan pipeline from the beginning had a political rather than economical meaning. In the 1990's, when world oil prices were at the bottom, the project was kept alive because of the ceaseless care of American administration and British government. The business people in that time were saying that the construction of pipeline is not profitable and might even end up in big loss.On a Side

What is Baku-Tbilisi-Jeikhan?

The total length of main export pipeline Baku-Tbilisi-Jeikhan is 1767 kilometers (km) (Azerbaijani part - 443 km, Georgian -248 km and Turkish 1076 km). The capacity of the pipeline is planned to be around 50 million tons of oil per year or about 1 million barrels per day. The pump tariff is $2.58 per barrel. Besides the Azerbaijani oil, the pipeline will carry Kazakh oil, which would be delivered to Azerbaijan by tankers.
The construction of Baku -Jeikhan started in April of 2003 and will be finished in third quarter of 2005 (at first it was planned to launch it in fourth quarter of 2004). The start of the export of Azerbaijani oil from Turkish port Jeikhan through the Mediterranean is planned for October 2005.
The total cost of the project is $2.95 billion, and with estimation of the credit interest --$3.6 billion. About 30 percent of the finance was provided by the European Bank of Reconstruction and Development and by the World Bank. To complete the project, the BTC Co. was established in 2002. The stakeholders are: British Petroleum (BP) – 30.1 percent of shares (the project operator), Azerbaijani GNKAR - 25 percent, American UNOCAL -8.9 percent, Norwegian Statoil – 8.71 percent, Turkish TPAO – 6.53 percent, Italian ENI -5 percent, French TotalFinaElf -5 percent, Japanese Itochu -3.4 percent, Japanese Inpex -2.5 percent, American ConocoPhillips -2.5 percent and American Hess – 2. 36 percent. The exploitation of the pipeline is intended for 40 years. The profitability is expected to be not less than 12.5 percent within the first 20 years.

From the very moment when Baku, London and Washington started to discuss a new distribution channel of Caspian oil, there were quite incredible events going on sometimes around the pipeline (see the remarks). It is not surprising, taking in consideration how many countries were preventing this project to come through. Moscow was lobbying for its own version of the pipeline route -- through Chechnya and Novorossiysk -- and was against the configuration where Caspian oil was going to the west passing by Russia. Tehran was also unhappy after its proposal to run the pipeline through Iranian territory was rejected. And, finally, oil-producing countries from the Persian Golf were dead set against the project. The appearance of the new, independent oil resource from these countries was a serious strike for them.
Each interested side was putting up a tough fight for or against the pipeline. For instance, OPEC countries were putting joint efforts to holding world oil prices on the level that would make construction of the pipeline unprofitable. While Russia was pushing its project through, Turkey in response was toughening conditions for Russian super-tankers to pass through Bosporus.
The constant rise of the oil prices after September 11, 2001, removed the biggest economical obstacle in the way of the Baku-Jeikhan pipeline. The project became profitable. However, the political stabilization in Georgia and Azerbaijan was the final condition for finishing construction. Turkey and USA made everything possible to reach this goal. Right before Geidar Aliev's death in 2003, Azerbaijan authorities decided to move the dying president to Ankara. Soon, there was a message from the Turkish capital that Geidar Aliev appointed his son Ilkhan to be the Prime Minister. Then Aliev was moved to the hospital in Cleveland, OH, where he spent time while the new presidential election was raging in Azerbaijan. And only after Ilkhan won the election, the news of elder Aliev's death was published. That helped to avoid any destabilizing events.
Several months later, Georgia went through the "Rose Revolution." New leadership was seriously intent on getting the pipeline opera table as soon as possible and even provided security along the length of whole pipeline.
The only thing that could prevent the project from being finished is re-ignition of old ethnic conflicts in Karabakh, Abkhazia and South Osetia. These conflicts could directly threaten the pipe that is laying nearby. However, by now, the West has invested large amounts into the project and will not allow any risks. From now on, all games in the region will be played by new rules and will be linked to the Baku-Jeikhan axis. And the whole policy of the West will be directed to the pipeline protection.
Oil in exchange for revolution
Several months ago, the head of the US armed forces in Europe General James Jones, speaking during a Congressional hearing, said out loud about the well-thought out initiative called Caspian Watch. The initiative proposed to form a network of several regiments containing Special Forces and police from the Caspian countries, which could quickly react to different threats including a terrorist attack on the pipeline.
The launch of the pipeline does not mean only the strong control of the American military outside the Georgian and Azerbaijani territories. In fairly close perspective Baku-Jeikhan is the road to Central Asia. The launch means also participation of the Caspian region countries in the world economy. The Western corporations drill the oil, and the pipe allows for speedy delivery of the oil to the world market. The oil would be running from East to West, but the spirit of "color revolutions" will be running in the opposite direction.
The huge charge of social tensions, accumulated in the countries with authoritarian regimes, can explode at any given moment. And a "velvet" change of regimes is probably the only alternative to this potential explosion. Kazakhstan already has expressed a desire to be linked to the pipeline. It means that Washington already has direct interest to the stable and predictable regime in Astana, which would not pose a threat to the oil production. However, Nazarbaev's administration cannot guarantee such stability -- all its efforts right now are directed toward preventing a repeat of the "orange scenario" in the presidential elections this year. And the attempts to provide "stability" at any cost might lead to a new Andijan-type massacre. It is doubtful that the West, which has already invested serious money in the pipeline, will fully rely on Astana. With the Baku-Jeikhan oil pipeline launch, the "color revolution" in Kazakhstan looks almost like a done deal in order to protect the oil supply.
Azerbaijan is also facing parliamentary elections this November. The West might not trust the current regime enough to let it be the key keeper of the major oil pipeline. This time the USA and Europe are insisting on honest, transparent elections, which will result in the appearance in parliament of powerful, and maybe even dominating, opposition. And after that, there would be unavoidable change or transformation of the regime.
Sooner or later, the same fate is expected in the rest of the Central Asian countries because after Baku-Jeikhan pipeline launch it will be directly in Western interest. The last on the list is the most infamous, but extremely important for world energy market, Turkmen regime.
However, the effect of the Baku-Jeikhan pipeline will be felt not only in post-Soviet space. When the West starts to receive Caspian oil, the United States will finally have an opportunity to deal with Iran. Until now Tehran is successfully scaring Washington with a collapse of world energy if the Iranian regime is threatened. The Iranian military warned that they would block the entrance to the Persian Golf by sinking several super-tankers. The Caspian oil would not cover all the losses if the events develop in this direction, but it will lessen the US dependence on Persian Golf oil.
But the situation in Iran shows that the USA might not have to use the Iraqi scenario to replace the regime. The coming presidential elections will expose how unpopular the current Tehran government is and how big the potential of the protesting population led by students. And only then it might appear that all previous "color revolutions" were nothing more than a rehearsal to the main - "oil revolution" in Iran.

Kazakhstan To Build Pipeline Through Russia

25.05.2005 7:01 [Neftegaz.ru] - Kazakhstan President Nursultan Nazarbayev said yesterday, that the country’s oil companies would pump large amounts of its crude through a $4 billion U.S.-backed pipeline. The Baku-Tbilisi-Ceyhan pipeline is expected to go into full operation six months from now and become a major competitor to traditional export routes for Caspian oil that pass through Russia.

Caspian pipeline to ensure Georgia's energy safety

RBC, 26.05.2005, Tbilisi 09:59:30.The Baku-Tbilisi-Ceyhan (BTC) pipeline has laid the foundation for Georgia's energy independence, the country's leader Mikhail Saakashvili told reporters after visiting the pipeline's opening ceremony in Azerbaijan. The head of state believes BTC, as well as the Baku-Tbilisi-Erzurum gas pipeline, which is being built, will ensure Georgia's energy security. The country will receive up to 800m cubic meters of gas within the Baku-Tbilisi-Erzurum project. However, this will not be enough to satisfy Georgia's need of gas. As the Georgian fuel and energy agency told RBC, the USA would assist the country in negotiations with Azerbaijan and the project's sponsors over an increase in gas supplies.

Tuesday, May 24, 2005

International Bank Syndicate May Finance Russia-Japan Pipeline Project

Photo from www.imagebank.com24.05.2005 13:20 MSK MosNews - Russia's oil pipeline monopoly Transneft is in advanced talks on a loan syndicate to fund the $6.5 billion construction of the first phase of a major eastward oil export pipeline, the company's CEO Simon Vainshtok said in an interview published by Vedomosti business daily on Tuesday, May 24. Financing for the link that is set to connect oil fields in East Siberia with the Pacific Ocean port of Nakhodka and which could have a capacity of 80 million tons a year (1.6 million barrels per day), would be raised from an international bank syndicate, Vainshtok said. He did not elaborate on the size of the loan. "We are well advanced in these talks," Transneft's official told the paper. "It's a syndicate of Western banks, but there are Russian banks too." The first stage of the proposed 4,200 km (2,625 mile) pipeline, whose construction was approved by the government last December, would run from the Irkutsk region of Siberia to Skovorodino in the Amur region, or midway to the Pacific. Oil would be then taken by rail to China and the Pacific coast, primarily to serve the Japanese market, while two pipeline extensions are completed in the project's second phase. Vainshtok estimated total costs of the eastward pipeline, critical for Russia to diversify away from European markets and secure access to booming Asian markets, at $11.5 billion. "We think that $6.5 billion to get to Skovorodino will be enough," he said. The official also said that Phase 1 of the eastern-bound pipeline would have a capacity of 80 million tons a year and take around 26 months to complete. Thirty million tons of oil would be annually channeled to China, while the remaining 50 million (1 million barrels per day) — to the Pacific coast. China and Japan have competed to become the pipeline's exclusive destination, but Vainshtok said he had been left cold by a take-it-or-leave it offer of funding from Japan which would be made only if the pipeline skirts China. "Japanese investors must give us a better offer than the others," said Vainshtok. "We say that financing Transneft is a privilege. For our company, without any state guarantees ... or preconditions attracting $6-$7 billion for 15-20 years does not pose any problems." Vainshtok said no formal government decision had yet been taken on building the Chinese pipeline branch, but said he expected it to be approved. Transneft plans simultaneously to build a $2.2 billion pipeline linking oil fields in Western Siberia with a proposed terminal at Indiga on the Barents Sea, Vainshtok said. The Indiga project is competing with a rival proposal from oil major Lukoil to build its own Barents Sea terminal at Varandei. He also said that the capacity of Transneft's Baltic export pipeline would be raised to 60 million tons a year in the first half of 2005 from the 52 million tons it services now.

Monday, May 23, 2005

Caspian Pipeline Expansion Delayed

05-23-2005 By Eduard Gismatullin Bloomberg - LONDON - Russia is delaying expansion of the ChevronTexaco-managed pipeline that ships Kazakh oil to the Black Sea. The government has delayed approval of a planned $1.5 billion upgrade to the link, prompting Chevron and its partners to seek alternatives. The Caspian Pipeline Consortium's shareholders, the biggest of which is the Russian government, failed to agree last week in Moscow on the expansion, the venture said Friday in a statement. "The pipeline is important for Russia to control oil exports from Kazakhstan," said Valery Nestorov, an analyst at Troika Dialog brokerage. "The talks should resume and the parties involved will eventually come to an agreement." "Corporate governance is the main issue outstanding in the negotiations," said the venture, also known as CPC. "The Russian government still wishes to see the establishment of boards of directors with substantial powers." Tengizchevroil, the largest Kazakh oil producer, plans to spend about $4.4 billion to almost double output by 2007 and needs more pipeline capacity to move crude to the Russian port of Novorossiisk on the Black Sea. Russia in March said the CPC needs to raise tariffs to make more money from exporters. CPC plans to increase oil exports 42 percent to 640,000 barrels per day in 2005. "With forecasts of substantially higher volumes in the next two or more years, CPC needs to move ahead with its expansion plan," the venture's general director, Ian MacDonald, said in the statement. The Industry and Energy Ministry was not immediately reached for comment. CPC plans to pay back investments to shareholders in 2013 or 2014, at least a year later than an earlier plan, the venture said. The shareholders agreed to the delay. The partners, which include ExxonMobil and Royal Dutch/Shell, have already spent about $2.7 billion to build the link. "Shareholders have already agreed to the management secondees in CPC being allocated in proportion to equity interests, meaning that the original founding members of CPC would be entitled to 50 percent of the management positions," the venture said. Russia wants more control over management. The pipeline venture needs to add 10 oil pumps, additional tank farms and one more loading terminal on the Black Sea to boost shipments before 2009, it said in the statement. Pumping may rise by 200,000 bpd in the first half of 2007 and then further by about 200,000 bpd, reaching capacity of 1 million bpd by 2008. The project will reach full capacity of 1.34 million barrels a day after 2008 and will generate $2 billion per year in shipping fees. Chevron holds 50 percent of Tengizchevroil, which is tapping Tengiz, a field with as much as 9 billion barrels of recoverable reserves, according to the U.S. company. That would be enough to meet U.S. demand for more than a year. Kazakhstan is the second-biggest oil producer in the former Soviet Union and plans to almost triple production in 12 years to 3.2 million bpd.

Thursday, May 19, 2005

Russia to Build Oil Pipeline to China, Pacific

19/05/2005 (16:01) RZD News - The pipeline, which will supply oil from Russia's Eastern Siberia to Asian states, will first run to China, and then to the Pacific coast, Russia's Ambassador Extraordinary and Plenipotentiary to China Igor Rogachev told reporters in Beijing on May 19. "I believe oil will first of all go to China from Skovorodino," the ambassador said. "On the second stage of the project, a pipeline will go east - to the Pacific Ocean coast," the ambassador added. He said the exploration of oil deposits continues in the Asian part of Russia. "I believe we shall find a lot of oil and we shall be able to supply it to many Asian countries, for example Japan and South Korea," Rogachev stressed. In reply to an Itar-Tass query about a possible participation of Chinese companies in the exploration of oil deposits in Eastern Siberia, Rogachev said an agreement had been reached "with Chinese colleagues to discuss that issue, in which both sides have aspects of mutual interest." "I am confident that an agreement will be reached on that issue," the ambassador emphasized.

Wednesday, May 18, 2005

Transneft Recorded Revenue for Q1 2005

18/05/2005 (10:04) RZD News - Open Joint Stock Transneft Oil Transporting Company recorded revenue of 43.833 bln. rubles for the first quarter of 2005, an increase by 35% year-on-year (32.381 bln rubles). Company's net income decreased by 10% to 3.304 bln. rubles from 3.634 bln. rubles. The cost value of the produce amounted to 36.981 bln. rubles versus 27.191 bln. rubles last year. The gross profit raised to 6.852 bln. rubles from 5.189 bln. rubles, reports AK&M.

Monday, May 16, 2005


MOSCOW, May 16 (RIA Novosti) - Transneft has allocated 850 million rubles, or 17% of its net 2004 profits, to study the feasibility of constructing an oil pipeline on the Arctic Ocean's bottom that could export oil to the United States, Vedomosti, a daily, reported. State-run Transneft monopolizes all Russian trunk pipelines. Transneft Vice-president Sergei Grigoryev confirmed corporate plans, noting that the pipeline will stretch from Kharyaga in the Komi Republic to Indiga in the White Sea. The new pipeline would pump 24 million tons of oil per year and requires about $2.2 billion to complete. Grigoryev said he was sure that Transneft could implement this project on a par with the Eastern Siberian oil pipeline, which will cost an estimated $11.5 billion. There has been discussion of constructing an Arctic oil pipeline toward the Barents Sea coast for several years. Russian oil giants like LUKOIL, Yukos, TNK, Sibneft and Surgutneftegaz suggested building a pipeline toward Murmansk on the east shore of the Kola Bay in the Barents Sea. However, federal officials did not like the idea of building a private oil pipeline. Transneft then suggested working out a Western Siberian - Barents Sea coast pipeline route. Bureaucrats took their time in choosing between the Arctic pipeline and the Eastern Siberian pipeline and decided to build the Taishet - Pacific pipeline in late 2004. The Kharyaga - Indiga pipeline is a scaled-down version of the initial Arctic pipeline. It is much cheaper because it can be built with the Eastern Siberian pipeline, Valery Nesterov, an analyst with Troika Dialog brokerage said. The Western Siberia - Indiga pipeline, he said, would cost some $5.6-6.2 billion. And the Murmansk pipeline would cost about $11.8 billion. According to Nesterov, the Arctic and Eastern Siberian oil pipelines could be commissioned before 2010. And he expects this route to be popular with oil tycoons. LUKOIL and Rosneft, which are developing the Timano-Pechora deposits, are interested in this route, as are Surgutneftegaz and TNK-BP.

Thursday, May 12, 2005

EBRD to Finance Pipeline?

12/05/2005 - RZD News - The European Bank for Reconstruction and Development may help finance Poland and Ukraine's planned pipeline to carry Caspian oil from the Black Sea to the Baltic. Rzeczpospolita said Wednesday the EBRD could fund most of the project's estimated 400 million to 450 million euro ($514 million to $578 million) cost provided certain conditions were met. "[The EBRD] is talking about guarantees from Caspian producers, who would commit to using the pipeline for 10 years, for example," reports the Moscow Times referring to Rzeczpospolita.

Wednesday, May 11, 2005

Azerbaijan to Double Oil Transit Through Russia in 2005

Map of Azerbaijan / Image by MosNews.com06.05.2005 MosNews - Azerbaijan plans to almost double its oil shipments through Russia in 2005. The transit will take place via a key pipeline linking Baku on the Caspian Sea and Russia’s Black Sea port of Novorossiisk. The volumes will increase to 4.0-4.5 million tons, a senior Azeri oil official said on Friday, May 6, Reuters reported.
Natik Aliyev, head of Azerbaijan’s State Oil Fund, told reporters that in 2004 shipments through the pipeline which takes Azeri oil to international markets equaled 2.6 million tons. He added the rise would be mainly due to higher oil shipments by his firm and Britain’s British Petroleum.
BP leads an international group developing the Azeri-Chirag-Guneshli fields, which have estimated recoverable reserves of 5.4 billion barrels and planned production of over 1 million barrels per day by 2009. The group includes U.S. firms ExxonMobil, Unocal, Delta Hess and Devon Energy, Japan’s Itochu and INPEX, Norway’s Statoil, Turkey’s TPAO and SOCAR.

Thursday, May 05, 2005

Gas Pipelines Need Investors - Sharonov

Deputy Economic Development and Trade Minister Andrei Sharonov
May 6, 2005 By Halia Pavliva - Bloomberg - Russia should end Gazprom's monopoly on natural gas shipments and allow private investors to help finance new pipelines, which would increase supplies and lower prices, Deputy Economic Development and Trade Minister Andrei Sharonov said in an interview published Thursday. "The problem is that Gazprom owns the pipelines," Sharonov said in Rossiiskaya Gazeta. "Gazprom doesn't need to develop the pipelines because it's not interested in the gas transport business and there is enough capacity for shipping its own gas." The Economic Development and Trade Ministry has been lobbying the government to take the country's gas pipeline network away from Gazprom for five years, Sharonov said. There isn't enough gas for Russian companies "exactly because of" Gazprom's monopoly rights and "non-market prices," he said. Russia needs to develop its network of oil and gas pipelines to increase exports and sustain economic growth. The economy is expected to grow as much as 6.5 percent this year, slower than last year's 7.1 percent, Economic Development and Trade Minister German Gref said last month. Sharonov said Gazprom, which supplies about a quarter of Europe's gas, should have real competition on the domestic market, including from Turkmen and other foreign companies. "I personally don't see anything frightening in making pipelines privately owned, or at least letting private money participate in the construction of the pipelines," Sharonov said. "The state will be able to defend itself" via customs, tariffs and anti-monopoly laws. The government's lack of "political will" to reform Gazprom has made it difficult for other producers to ship gas, Sharonov said. President Vladimir Putin said last month in Germany that Russia should sell more state companies to diversify the economy away from oil and gas, which make up about a quarter of gross domestic product. "So far, there have been no state assets sales this year," Sharonov said. "And this is a worrying signal." Russia postponed 90 percent of the asset sales it scheduled for the first quarter and may do the same for the whole year because of disagreements between competing government property agencies, Federal Property Agency chief Valery Nazarov said last month

Transneft Squeezes the Pipeline

05.05.2005 Kommersant - by Irina Rybalchenko - Kommersant has learned that OAO AK Transneft is preparing a proposal to increase oil transport rates through main pipelines. If the Federal Tariff Service (FST) accepts Transneft's proposal, this will already be the second rate increase in 2005. Transneft's plans are apparently connected with the start of construction of the Eastern Oil Pipeline - the higher the rates, the more internal funds the company will have for project implementation. However, it is not inconceivable that the pumping rate through it will also increase in the first phase, and this could threaten the entire project. As they told Kommersant at the FST, Transneft's plans to increase oil transport rates through main pipelines are still only at the level of talks; therefore, the tariff service did not specify the amount of the increase under discussion. Recall that in an interview with Kommersant last week, Transneft President Semen Vainshtok said that the company would aim for rate increases only within the limits of inflation. The federal budget for 2005 plans for inflation of 7.5 - 8.5 percent, but according to recent forecasts, inflation rates will be closer to 10 percent. "This value will suit Transneft perfectly," they said at the FST. However, we recall that the matter concerns the second increase in a year - by a decision of the FST, oil transport rates through the Transneft system have already increased an average of 11.2 percent in Russia as of January 1, 2005.
Transneft is probably seeking a rate increase in order to minimize the amount of borrowed funds needed to build the Eastern Siberia-Pacific Ocean oil pipeline (Eastern Oil Pipeline). Recall that the project will be implemented in phases. The first phase is construction of the section from Taishet to Skovorodino, with simultaneous construction of an oil terminal at Nakhodka, to which oil from Skovorodino will be delivered by rail. The second phase is construction of the Skovorodino-Perevoznaya section, which will begin when oil companies start commercial production of the Eastern Siberian fields.
According to Vainshtok, "an oil company should be indifferent to how oil is exported, whether by rail and pipeline or just by pipeline" [see Kommersant of April 29]. Therefore, Transneft is proposing to fix pipeline transport rates to Skovorodino at $49.90 for deliveries to China and same total rate to Skovorodino via pipeline plus Skovorodino to Perevoznaya by rail. "The two monopolies must offer oil companies equal terms," they agreed at FST. However, at OAO Russian Railways, they think that the railways will not be able to recoup their investments at this rate.
As they explained to Kommersant at Russian Railways, a branch line will now have to be extended from Skovorodino to Perevoznaya Bay (Skovorodino-Kedrovy siding), which is nearly 2000 km along the Trans-Siberian. In order to be able to transport up to 30 million metric tons of oil per year in tank cars (as proposed for the first phase of construction), the section of the Trans-Siberian main line will have to be reinforced. Last year, about 15 million metric tons of oil were transported along the Trans-Siberian from Angarsk to China and to Far Eastern refineries; this year, it is planned to increase shipment volumes to 19 million metric tons of oil. It will also be necessary to expand the locomotive fleet. According to Russian Railways' information, this could cost as much as $50 million. "These investments must be recouped in full in order to extend the pipeline to Perevoznaya," they note at Russian Railways.
According to the company's calculations, the proposed total rate of $49.90 per metric ton assumes that Russian Railways' share in only $18 per metric ton. "This is clearly not enough, since the present rate with without any extra investment charges along the Skovorodino-Kedrovy siding branch is $34 per metric ton," Kommersant's source from Russian Railways contended. "The rate will be formulated objectively, so we can't give any guarantees that the rail-pipeline through rate will be $49.90 per metric ton.
Vainshtok, however, is confident that he will be able to find a compromise with the railways and avoid a rate increase for transporting oil through the Eastern Oil Pipeline. Otherwise, the entire project will be threatened, since oil companies are unlikely to agree to such conditions to switch from the westerly direction to the easterly.

Wednesday, May 04, 2005

Pipeline Upgrades Cut Into Transneft's Profit

May 5, 2005 - Bloomberg - Oil pipeline monopoly Transneft said Wednesday that 2004 profit fell but declined to confirm a report in Vedomosti that net income totaled 5 billion rubles ($179 million). Vedomosti said on Wednesday that Transneft's profit dropped more than threefold to 5 billion rubles last year, without citing anyone. Transneft reported net income of 15.8 billion rubles in 2003, according to unconsolidated Russian accounting standards, the newspaper said. Transneft will release 2004 earnings using international accounting standards in a week to 10 days, vice president Sergei Grigoryev said Wednesday in a telephone interview. Profit declined as the company spent more to upgrade pipelines and shifted more funds to subsidiaries to be able to raise borrowing for investment, he said. The state-controlled monopoly has been struggling to ship rising volumes of crude through its pipeline network. The country's oil producers have boosted exports amid soaring fuel prices and growing demand from consumers. Their output has increased 50 percent in the past six years. Transneft will pay 10 percent of its profit in dividends on preferred shares, the amount it is required to pay out according to its charter, Grigoryev said Wednesday. The company is 75 percent owned by the state, with the remaining 25 percent traded in the form of preferred shares. Transneft ships about 97 percent of the oil produced by Russia, the world's largest crude exporter behind Saudi Arabia. Transneft shipped 450 million tons of oil last year, compared with 416 million tons in 2003.

Tuesday, May 03, 2005

Tokyo casts pipeline financing in doubt

Photo from www.wikimedia.org 03.05.2005 The Moscow Times - Japan is threatening to withdraw its offer to help finance an $11.5 billion oil pipeline from Siberia to the Pacific coast if the government goes ahead with a plan to build a spur to China first, the Financial Times reported Friday. Energy-hungry China and Japan have been competing for the rights for first access to Siberian oil for years. When Russia finally announced last year that it would build the pipeline to the Pacific coast, it was seen as a victory for Japan. But Japan's trade minister, Shoichi Nakagawa, told the FT last week that Moscow had raised the possibility it could build the 4,100-kilometer pipeline in two stages and extend a spur from Skovorodino in eastern Siberia to China. Industry and Energy Minister Viktor Khristenko signed off on a decree last week that ordered the first $6.5 billion section of the pipeline to be laid from Taishet in the Irkutsk region to Skovorodino by late 2008. While work begins on the second section of the project to extend the pipeline to the Pacific coast, the oil would be transported by rail to a terminal on the coast. But Skovorodino's proximity to the Chinese border, just 69 kilometers away, throws open the possibility that a spur to China could be built before the Pacific coast link is finished, the paper reported. Building a spur to China first could endanger the completion of the link to the Pacific, particularly if exploration in eastern Siberia yields disappointing results or does not proceed at all. The Trans-Siberian link is planned to have an initial capacity of 600,000 barrels per day and to climb after completion of the second phase to 1.6 million bpd. China would easily consume the initial 600,000 bpd, opening the possibility that the second stage might not go ahead. Oil pipeline monopoly Transneft did not rule out that China might be able to tap into the pipeline first through the link to Skovorodino. "We are building a pipeline across our own territory. No one will decide for us who gets oil through it first," Transneft vice president Sergei Grigoriyev told the FT. "If the pipeline stops halfway, then there's a big risk that the oil will never reach Japan," said Nakagawa, whose ministry is in charge of Japan's energy policy, the FT reported. "The point I made [to Russia] is, we would not be able to provide taxpayers' money for such a risky project." Grigoriyev, however, said Japanese funding was not necessary to complete the project, the FT said. Russian oil firms, meanwhile, are indicating that proposed transport charges for the pipeline are too high to make the development of eastern Siberian fields commercially viable. "In the current circumstances, oil firms have no interest in developing new regions, especially east Siberia," the president of No. 4 oil firm Surgutneftegaz, Vladimir Bogdanov, told Prime-Tass. He called on the government to cut taxes for those firms that would develop eastern Siberia and use the expensive Asian pipeline. Transneft head Semyon Vainshtok told Kommersant last week that the average shipping fee on the route would be $49.90 per ton -- lower than expected but twice as high as the current fees from western Siberia to Europe. "We are going to apply a special price -- the closer [oil is produced] the more expensive it would be, the further, the cheaper. Then oil firms would be free to decide which market [Asian or European] they prefer," he said. Transneft has said that the first shipments via the pipeline would rely on crude from western Siberia, as the region is already connected to Irkutsk, but that it would need 1 million bpd from eastern Siberia to fill the pipeline completely. Bogdanov, however, said the price should be set at a maximum of $30

Monday, May 02, 2005


MOSCOW, April 29 (RIA Novosti) - Equipment and materials for building the pipeline system East Siberia-Pacific will be bought from Russian manufacturers, a source in the Russian Industrial and Energy Ministry told RIA Novosti. The ministry views as groundless any doubt related to Russia's emergence on the Pacific coast for exporting Russian oil to all countries in the Asia-Pacific region without exception, the source stressed. He recalled that at the first stage the first oil terminal in the Perevoznaya bay in the Maritime region will have a capacity of up to 30 million tones of oil annually. The second construction stage includes a linear section from the town of Skovorodino to the Perevoznaya bay, having an annual capacity up to 50 million tones. The source also said that at the ministerial conference, in which representatives of the economic development and trade, finance ministries and Transneft took part, in discussion were possible mechanisms of state support for the building project. Economic Development and Trade Minister Victor Khristenko has approved the building stages of the East Siberia-Pacific pipeline system. Its becoming an integrated pipeline system will be finalized by 2009, he said. Khristenko believes that the system will resolve the goal set way back in the 1980s - "creating a system that would encompass the entire territory of our country". The total cost of the oil pipeline system is 11.5 billion dollars.

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