Pipeliners

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.