Pipeliners

02/ 22/ 2007 - MOSCOW. (RIA Novosti economic commentator Vasily Zubkov) - Moscow has accepted a rise of oil transit tariffs by an average of 30%, but this has not put an end to the Russian-Belarusian oil-and-gas squabble - Minsk's decision is fraught with a whole package of problems. Today, the Russian government is considering a project to extend the Baltic Pipeline System. Russia may have to invest heavily but if it builds the new pipe, Belarus will lose two thirds of the Russian oil transit. In proportion, transit will go down for Poland and Ukraine, but the end user will have guaranteed supplies. The Druzhba (Friendship) Belarusian leg stretching to Poland and Ukraine is about 2,000 km. Minsk hopes it will bring in up to $50 million this year. But this is only possible if pumping stays on the same scale. Nobody knows how long Belarus will keep the current new tariffs. Transneft Vice President Sergei Grigoryev told RIA Novosti that the situation is unclear: "There is no guarantee that the tariffs will not go up any day." In the last six years, the amount of Russian oil pumped through the Friendship pipeline has gone up by 50% to reach almost 80 million metric tons - a third of Russia's entire oil exports. Belarus itself purchased another 20 million metric tons. The pipe was temporarily shut down because of the disagreement over gas prices in January, which seriously damaged Russia's reputation of a reliable supplier. The proposal to build a new pipeline with a capacity of up to 50 million metric tons a year on Russian territory to Primorsk terminals on the Baltic Sea was submitted to the Russian government in order to prevent future collisions. Higher Belarusian tariffs are no longer front-page news. Some experts explain them as Minsk's response to Moscow's recent increase in oil prices for Belarus. Minsk insists that it has changed tariffs because the servicing of the pipe has become much more expensive since the adoption of the old tariffs on January 1, 1996. Minsk has compared its rates with much higher tariffs of other neighbors: Ukraine charges $0.89 per metric ton for 100 km, and Poland -- $0.9. Another argument is that Russia's tariff for the transit of Kazakh oil is $0.73 per metric ton for 100 km. Needless to say, Minsk has conveniently forgotten that it pays Russia much less than other transit countries for the 20 million metric tons of oil and 20 billion cubic meters of gas it receives. If it were not for dumping prices on hydrocarbons, Belarus would never have been able to export oil and gas products to Europe. The Russians were prepared for new transit tariffs. Ten days ago, Minister of Trade and Economic Development German Gref emphasized that if we received a timely notice and held bilateral talks, and if the new increases were within adjustments, this would be acceptable, and a change was possible. The Belarusian arguments must have been convincing if three days ago the owner of all Russian oil mains - Transneft - signed an additional agreement on new tariffs with the operator of the Belarusian leg of the Gomeltransneft-Friendship export pipeline. Transneft Vice President Sergei Grigoryev is confident that the new tariffs will not affect the cost of oil for the European consumers. But the main point of the story is Moscow's decision to look for new ways of delivering oil to Europe. It may have to go for an expensive new pipeline because when it comes to exports, it cannot afford to depend on its neighbors (whether friendly or not). Belarus is already insisting on receiving rent for land under its Friendship section, and is trying to revise the transportation regime in the Kaliningrad Region, and the legal status of Russian military installations. In 2008, Russia may remove the majority of problems with transit countries. Somewhat later, the Baltic North Stream will do the same for gas. The government and the Duma support the idea of a new pipeline. Chairman of the Duma Energy Committee Valery Yazev thinks that this is a timely project in the interests of national energy security. Sergei Grigoryev said that the pipe may even be a bit shorter. Prospecting is already underway. About 1,000 people will be involved in its construction at the first stage. The tentative cost of the project is about $2 billion, and this sum will be borrowed. Once the new leg is built, Minsk will face a serious problem - apart from giving it transit fees, the Friendship pipe delivered 20 million metric tons of oil for its economy. Where will Belarus get oil, and how much will it pay? Clearly, Russia will no longer sell oil below world prices. President of neighboring Lithuania Valdas Adamkus said Alexander Lukashenko could transport oil from Klaipeda by rail. But who has seen oil in Klaipeda? The tentative result of the current energy clash is as follows - Belarus will lose a sizeable portion of its profits from oil transit, and will not receive Russian oil; Ukraine, Poland, and Lithuania will part with some transit profits. Russia will have to pay a lot for the new pipeline, but will make its oil exports failsafe; it will also get money for oil transit. The European consumers will receive Russian oil in a year and a half, and will never have to worry about delays again.