Pipeliners

13 February 2007 - Upstream onLine - Russia will spend at least $11 billion to build the first leg of its oil pipeline to Asia, up from initial estimates of $6.6 billion, pipeline monopoly Transneft said. "Phase 1 of the project is scheduled for completion in late 2008 and the total cost to Transneft is expected to be about $11 billion. The cost of Phase 2 has not yet been evaluated," said Transneft in its Eurobond prospectus. The prospectus is for a seven-year benchmark Eurobond in US dollars. Phase 1 of the scheme envisages shipments of 600,000 barrels per day to China. Transneft had to revise the project last year as the route was passing too close to the ecologically sensitive Lake Baikal. Transneft has said the new route would cost more. Phase 2 foresees expansion of the link to 1.6 million bpd and the building of a second leg to the Pacific coast, where a terminal would be already built as part of Phase 1. "We estimate that the pipeline monopoly may spend as much as $20 billion on the entire project calculated at 2006 prices," Deutsche UFG said in written research. Valery Nesterov from Troika Dialog brokerage said the project could turn out to be one of the most expensive ever, with planned capital expenditures of about $3.9 million to $4 million per kilometre of pipeline. By comparison, the BP-led Baku-Ceyhan pipeline from Azerbaijan to Turkey cost $2.2 million per kilometre, while the Chevron-led CPC pipeline from Kazakhstan to Russia's Black Sea port of Novorossiisk cost $1.7 million per kilometre. "The difference is easy to explain by escalating costs and much harsher environmental and infrastructural problems associated with the Asian pipeline's construction," Nesterov said. Artyom Konchin from Aton brokerage said he expected Transneft to recover costs via a state-approved increase in transit fees, which may worsen the economics of East Siberian fields' development for Russian oil majors, Reuters reported.