Pipeliners

May 29, 2008 - Russia Today - The planned Nordstream project, which will bring Russian gas to Europe through a pipleline under the Baltic Sea, is once again in the firing line. The EU Petitions Committee has called for a study to assess the environmental impact of the $US 12 billion project. The Committee report came in response to appeals from Polish and Lithuanian environmental associations, which claim that the pipeline could harm marine eco-systems. The report stressed the potential threat to the environment posed by disturbing chemical weapons stocks from World War Two dumped in the Baltic. But environmental concerns are less substantial than economic considerations, according to Tatyana Mitrova, head of the Energy Research Institute. “It’s obvious that Poland is a loser in case of Nordstream construction because it’s losing its transit fees. So the reasons are very clear, and the means that Poland uses to fight against this project are very typical,” Mitrova said. Analysts say the previously planned projects crossing the Baltic Sea, but not bypassing Poland, never met any opposition from Warsaw. Many people think that the economic necessity of the pipeline is likely to prove too strong for those countries looking to resist it. But, they might be wrong. Paul Vandoren from the EU Commission delegation to Russia says the environment must be protected. “Economically speaking this is a very important project but it shouldn’t be introduced at any cost. It’s normal that all the aspects including environmental aspects are looked at very carefully,” Vandoren said. Nordstream’s developers say the Petitions Committee report is misleading and makes a number of factually incorrect claims. They say an independent Environmental Impact Assessment for the project has already been completed and it will be made publicly available later this year.

May 28, 2008 - Kommersant - European Parliament’s PETI concluded that Nord Stream gas pipeline that Gazprom intends to lay offshore via the Baltic Sea from Russia to Germany would threaten the environment and proposed to consider some other routes for this purpose. PETI focused on the issue after receiving a petition signed by 30,000 EU residents, mostly from the Baltic States. The authority backed up the petition and forwarded it to the European Parliament that will deliver a nonbinding resolution in July. Russia needs Nord Stream to sell gas to Europe bypassing the intermediary nations. The plans are that the first stage of the gas pipeline will be constructed in 2010, while the second stage will be put into operation in two years. Gazprom again evaluated the project budget in April 2008. According to monopoly, laying Nord Stream, which length will reach 1,200 kilometers will cost €7.4 billion. In addition to Gazprom that owns 51 percent, the Nord Stream operators are German Wintershall, E.ON Ruhrgas (20 percent each) and Netherlands Gasunie (9 percent).

22 May 2008 – Upstream OnLine – The head of Ukraine oil monopoly Ukrtransnafta Igor Kiryushin said today the country is ready to make a shipment of 44,000 tonnes (323,400 barrels) of light crude through the Odessa-Brody pipeline to the Czech Republic as a first step in converting the pipeline for European supply. The shipment could be the first step in turning the pipeline into a regular route for sending Caspian oil to European refineries instead of what it is now used for – sending Russian oil to Black Sea ports near Odessa. “Ukrtransnafta is completely ready for such a shipment. The positive results of these shipments will show our readiness and capability to transport light oil,” Reuters quoted Kiryushin as saying. Ukrainian President Viktor Yushchenko, also present at the forum, issued a decree today to work out measures to redirect the Odessa-Brody oil pipeline to supply Europe from 2008.

MOSCOW, May 22 (RIA Novosti) - State-owned Russian oil firm Rosneft and China's CNPC are in the final stages of talks to build an oil pipeline branch from Russia's Far East to China, Russia's president said Thursday. "We have a basic agreement on this [branch]... We hope that all the main provisions, the main parameters for future cooperation will be agreed," Dmitry Medvedev said in an interview with Chinese journalists ahead of his visit to China, set for May 23-24. Under an agreement signed between China National Petroleum Corporation and Transneft, the oil pipeline operator, the construction of the pipeline branch will be funded by China. The ESPO pipeline is slated to pump up to 1.6 million barrels of crude per day from Siberia to Russia's Far East and then on to China and the Asia-Pacific region. The pipeline's first leg, estimated at $11 billion, was expected to be commissioned in December 2008. However, Transneft said in February that the commissioning of the project would be delayed from late 2008 to late 2009. The second leg will stretch for 2,100 kilometers (1,304 miles) from Skovorodino to the Pacific. It will pump 367.5 million barrels of oil annually. The capacity of the Taishet-Skovorodino pipeline, being built as part of the project's first leg, is also expected to increase to 588 million barrels from the initial 220.5 million bbl.

22 May 2008 – Upstream OnLine – Kazakh Deputy Energy Minister Lyazzat Kiinov said today Kazakhstan is seeking new routes to Europe for its increasing oil and gas exports, partly in an effort to free itself from an oil pipeline to Russia’s port of Novorossiysk. “Kazakhstan has a huge export capacity and we are studying all possible ways to increase shipments,” Bloomberg quoted Kiinov as saying. “We are committed to increasing fuel exports, year by year.” Kiinov said the country will seek to produce as much as 130 million metric tons of oil in 2015. Kazakhstan pumped 66.1 million tons in 2006, Bloomberg said, referring to BP. Kiinov said projects to export 2 million tons of liquefied natural gas by the end of 2015 are also under consideration. He said the country has reserves of as much as 8 trillion cubic metres of gas. Kazakhstan is the former Soviet Union’s largest energy producer after Russia and is estimated to hold 3.3% of the world’s reserves.

07 May 2008 - Upstream OnLine - Russia said today it had lifted its opposition to a plan to double the capacity of the Caspian Pipeline Consortium (CPC) trunkline from its current level of 32 million tonnes (253 million barrels) to 67 million tonnes (530 million barrels). The Russian Energy Ministry said in a statement Energy Minister Viktor Khristenko and his Kazakh counterpart Sauat Mynbayev had reached an agreement at a meeting in Astana. "A joint position has been agreed on the issue of the CPC expansion, which should take place before 2012 in two stages," Reuters quoted the statement as saying. Once work is complete, the link's capacity would double. Kazakhstan in turn agreed to help fill the Burgas-Alexandroupolis pipeline, sending up to 17 million tonnes (134 million barrels) of CPC crude to Alexandroupolis. In December, Kazakhstan's President Nursultan Nazarbayev said Russia will allow CPC to double capacity after years of opposition, but Moscow has never confirmed his statement. Moscow has criticised the project for low returns and said its expansion will add pressure on the congested Turkish Straits as oil is exported mainly to the Mediterranean. Russia, Kazakhstan and Oman hold stakes in CPC, while private shareholders are led by US supermajor Chevron and include BP, Shell, ExxonMobil, Lukoil and Rosneft.

05-07-2008 - MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - Russia's new president, Dmitry Medvedev, has inherited many economic problems, such as Russia's dependence on raw materials, monopolies, red tape and corruption, which are spurring prices and hindering economic development. On the other hand, he has a powerful instrument of tackling these problems, oil prices, which have soared to $120 per barrel. But Medvedev will also have to deal with other, no less formidable economic challenges.
Inflation Russia seems to have been developing quite well despite this chronic problem. However, the growth of prices accelerated last year and reached nearly 12% compared with 9% in 2006 and the planned 8.5% in 2007. The Russian government and Central Bank hope to stop inflation at 10% in 2008, although it has already reached 6.3% in the first four months. Experts predict yearend inflation at between 12% and 18%, which will discourage investment. Vladimir Putin pointed to a decrease in the fund for reforming the housing and utilities sector because of growing inflation, but the problem is much more serious. Investments are difficult to plan and make when prices keep rising. The outgoing government failed to draft a comprehensive anti-inflation program, but on May 6, its last day, it approved a schedule for a rapid growth of natural monopolies' tariffs until 2011, which will further stimulate inflation.
Commodities dependence Oil prices have soared to $120 per barrel and are unlikely to fall very low, even though economic growth in the United States and Europe has slowed down, reducing the demand for energy. Under a pessimistic scenario, the stagnation of the U.S. economy would last two years and spread to Europe, bringing oil prices down. However, the Russian government's economic advisers point to long-term macroeconomic stability in Russia, referring mainly to "safety bags" created mostly with export revenues, notably the Central Bank's international reserves and the reserve and national welfare funds. But if oil prices plummet, although this is highly unlikely, these safety bags will suffice only for a year or two. After that, the ruble will start losing weight, along with people's real incomes. Worse still, Russia's manufacturing sector will lose contracts because investment programs will be curtailed due to a fall in export revenues. In this event, the Russian economy will first overheat and then its growth will almost come to a standstill.
Banking crisis Unlike the hypothetical decline in oil prices, the likelihood of a banking crisis is growing quickly because Russia is linked to the global economy not only through commodities prices, but also through capital flows. In the past few fat years, Russian banks have taken out a huge amount of relatively cheap loans in the West. But the banking crisis currently underway there and subsequent increase in commercial interest on loans have greatly complicated Russian banks' ability to refinance debts. They are now denied loans abroad, or offered them at a high interest. Short-term loans are refinanced by the Central Bank's financial injections, but long-term refinancing will already become a serious problem this year. The Central Bank is helping banks by injecting money into the market, but it is also complicating their life by increasing its refinance rate. The Russian banking community has already proposed using the National Welfare Fund, even if partially, to solve the long-term refinancing problem.
Demographic problem The shortage of workforce is becoming a huge problem in Russia. Industries lack qualified personnel, and the number of agricultural workers is plummeting because people are moving to the cities. At the same time, prices of agricultural products have been growing rapidly, spurring inflation in 2007 and 2008. Russia can no longer offer cheap labor, which had been its advantage over industrialized countries, because people's incomes are growing. Therefore, a key task for the government is to train personnel and attract skilled labor migrants.
Modernization There is a remedy for the chronic disease of the Russian economy and a way to reply to global challenges. The country must invest petrodollars in new technologies and transportation infrastructure to ease its dependence on raw materials and stop the fear of a fall in oil prices. With high technologies and reliable infrastructure, Russia will be able to maintain high GDP growth rates even despite a relatively small, compared with Asian countries, but skilled and economically active population. Workers in high-tech sectors will receive high wages, but gains will be also immense because of high labor productivity. The successful development of high-tech sectors is impossible without increasing competition. Therefore, the government and state officials must give up their excessive economic functions and powers. Competition is the main anti-inflation tool in a market economy. Russia has created the initial conditions for attaining these goals. It has set up development institutions, such as the Russian Venture Company and the Bank for Development, and has been working for over a year on a concept of socio-economic development until 2020, which provides for innovation-driven progress. However, the development institutions are not yet working to capacity, and the outgoing government has not presented the final wording for the Concept 2020. Dmitry Medvedev's economic policy spotlights four I's - institutions, infrastructure, innovation and investment. This gives hope that the new president will see the challenges facing Russia better than the outgoing administration and government.

MOSCOW, May 7 (RIA Novosti) - Russia and Kazakhstan have agreed to double the capacity of the Caspian Pipeline Consortium (CPC) by 2012, the Russian Industry and Energy Ministry said on Wednesday. The decision was agreed during a visit to the ex-Soviet republic by Industry and Energy Minister Viktor Khristenko on May 6 and 7. "It [the expansion] should take place in two stages by 2012. As a result the pipeline's capacity will be increased from 32 million to 67 million metric tons of oil," the ministry said in a statement. The parties also agreed to supply an extra 17 million metric tons of Kazakh oil through the Burgas-Alexandroupolis pipeline. The trans-Balkan oil pipeline, being built by Russia, Bulgaria, and Greece, will pump 35 million metric tons of oil a year (257.25 million bbl), a volume that could eventually be increased to 50 million metric tons (367.5 million bbl). The Caspian Pipeline Consortium (CPC), designed to carry Kazakh and Russian crude to a terminal on the Black Sea, was commissioned in October 2001. Its capacity currently stands at around 30 million metric tons of oil a year. Ten pumping stations, six oil tanks for 100,000 cubic meters each and another tanker facility will have to be built for the pipeline to reach its full capacity. The two countries will hold expert consultations on the issue later in May. The feasibility study for the pipeline project expires in September 2008. Russia's pipeline operator Transneft is a beneficial owner of a 24% stake in the CPC, and Kazakhstan holds 19%.

05.06.2008 - New Europe News - The Russo-Hellenic agreement on Greece’s participation in the South Stream gas pipeline signifies a major change in southeast Europe which has gradually shifted from an Anglo-American to a European sphere of influence.South Steam brings Siberian, and other Gazprom controlled resources, gas mainly, through a pipeline crossing the bottom of the Black Sea to Bulgaria where it then splits into two directions. The first towards Central Europe through Serbia, Hungary and Austria and the second towards the South to Greece and from there on to Italy.The South Stream pipeline secures better gas supplies to Europe because it bypasses Ukraine, a population deeply divided between its alliances to Russia and the United States. This ongoing instability includes potential dangers in the regular flow of Siberian gas to Europe. The European Union has already sensed such a threat, once in the recent past.South Stream, however, while it satisfying the EU energy strategy, is in direct competition with the Nabucco US-UK promoted pipeline which will hopefully bring Caspian gas to Europe via Turkey.The US government expressed its deep dissatisfaction with the Greek initiative and the reason is not so much that South Stream is in competition with the Nabucco pipeline but because the Greek initiative implements and locks in a new geopolitical reality for Southeast Europe.The decline of American influence in Southeast Europe is due to a series of wrong choices by the US administration in the area. In Turkey, the US administration has aligned with the interests of the “deep” Turkish state and the military. Turkish society, however, is not stuck in the past, it is progressing and this is reflected by the popular support towards the Tayip Erdogan government, which is introducing bold structural changes in the administration and the economy.To this effect the “deep” state (Administration and Justice) and the Military have lost their absolute political rule, which for decades held control over Turkish public affairs and are now trying to negotiate a political role and the continuation of their economic existence.The Turkish army is the biggest business-financial complex in the country since various military funds have managed to acquire, at a nominal price, all state-owned enterprises and banks that have been privatised. Now, both the “deep” state and the military, are trying to negotiate with the political leadership of the country by blackmailing the ban, through a pending case before the Supreme Court of, the ruling party and 71 politicians including the Prime Minister and the President of the Republic.The diminishing influence of the US in Turkey has manifested through the US war in Iraq when the Turkish government, to the great disappointment of the military, did not allow the US to invade Iraq from the north through Turkey.The initial US military plan was to operate from the Diarbakir base, at first occupy the US friendly Kurdish territories of north Iraq and set their own Kurdish-ked, also US- government friendly, in Mussul and then continue marching in the south, to take over Baghdad. Instead, the American troops invaded Iraq from Kuwait, and moved to Baghdad through hostile territories with high losses and big delays. It is in this context that neither Washington nor London can use Turkey to manipulate and destabilise Southeast Europe anymore.Yet the US recently committed further mistakes in Southeast Europe. It was the US that “pushed” Serbia, under the influence of Russia, into granting independence to Kosovo with the only real reason to set in Southeast Europe a “secure” military base with a similar status to the Guantanamo base in Cuba. Yet, Cuba is next to Florida, while Kosovo is next to Italy and Greece, and thus any situation in the area against European interests is destined to fade out.The most recent mistake of the US administration was to support the Former Yugoslav Republic of Macedonia, in its dispute over the name of that country. In this case, regardless of the essence of the issue, the mere fact that the United States, set against one of its long time faithful NATO allies Greece in favor of a newlyformed state created from the remains of Tito’s Yugoslavia, constitutes a prime political blunder. As a direct result, during the recent Bucharest NATO Summit and after US president George W. Bush pompously announced the welcome of “Macedonia” to NATO, Greek Prime Minister Costas Karamanlis, immediately vetoed the membership of FYROM to NATO with the full support of Nicolas Sarkozy, Angela Merkel, Jean-Claude Juncker, Romano Prodi, Jose Luis Rodriguez Zapatero and others.It was there, in the NATO Summit in Bucharest, that Washington lost the upper hand in Southeast Europe in favour of the European Union, and the signing of the South Stream agreement between Greece and Russia last week is only one of the manifestations of this new reality.

Apr. 30, 2008 - Kommersant - Greece joined the Russian-Italian South Stream yesterday. An agreement was signed on the construction of a section of the pipeline across Greece with a capacity of 10 billion cu. m. of natural gas per year. Russian Ministerof Industry and Energy Viktor Khristenko and Greek Minister of Development Christos Folias signed the agreement in the presence of Russian President Vladimir Putin and Italian Prime Minister and Greek Prime Minister Kostas Karamanlis. Gazprom was forced to promise Greece a long-term contract for gas delivery with growing volume through 2013. Athens also retained the right to diversify its supplies with gas from Algeria and Turkey. Similarly to the agreements reached with Hungary and Bulgaria, Gazprom will form a joint venture with the Greek company DEPA to participate in South Stream. The agreement foresees tax benefits until the recoupment of the investment in the pipeline. The South Stream pipeline will stretch from Russia to Italy with a 30-billion cu. m. capacity. It is to be completed by 2013. It will run for 900 km. under the Caspian Sea and branch out in Bulgaria, with one line leading to Greece and onward to the Italian city of Brindisi, and another line running through Serbia, Hungary and Austria or Slovenia to northern Italy. Putin acknowledged yesterday that the Greek prime minister “is a strict negotiator.” Greece receives 90 percent of its natural gas and 30 percent of its oil from Russia.