• Wednesday, 16 May, 2012

Politics casts a shadow over options open to Transneft

-

 10 July 2003 23:05 GMT

Transneft has many options available to increase Russia's oil export capacity, but politics has cast a cloud over several practical proposals.
Such was the case in January this year, when Transneft stopped pumping crude to the Latvian port of Ventspils, arguing that the diversion of oil to Primorsk had exhausted its technical capacity.

However, Latvia believes the decision was part of a Russian policy to retaliate against its hopes of becoming a member of Nato.

Ventspils could offer more than 260,000 barrels per day of export capacity to Russia's producers, which were forced to transport output to the port by rail following Transneft's stoppage.

In the meantime, an additional export capacity of 130,000 bpd could be sourced almost immediately if a short pipeline were built to link the Transneft network and the Caspian Pipeline Consortium (CPC) line at the southern town of Kropotkin.

CPC -- which has an ultimate capacity of 1.34 million bpd -- pumps crude from Kazakhstan through Russia and exports it from a terminal near the Black Sea port of Novorossiysk.

According to CPC general director Ian MacDonald, this could boost Russian export capacity by 300,000 bpd on the back of "a relatively modest additional investment".

However, Transneft officials have repeatedly said it has no intention to build the link because Russia's oil producers "have yet to provide any throughput guarantees". Despite this, analysts note that a lack of such guarantees has not prevented it pushing ahead with the Baltic Pipeline System expansion.

Industry insiders say Transneft's objection to cooperation with CPC is because it feels the project will undermine its monopoly position in Russia.

CPC also uses the so-called quality bank to compensate shippers for loss in quality because of blending. The quality bank is strongly opposed by regional outfits Tatneft and Bashneft, which produce heavy and sour crude compared with the light and sweet output from West Siberia.

A third project that could add an initial 180,000 bpd of export capacity is the reversal of the Odessa-Brody pipeline in Ukraine, which has been standing empty since its completion in 2001.

Ukraine had desperately hoped Kazakh oil producers would ship some output across the Black Sea to the Yuzhny terminal near Odessa, before pumping it to Europe through the Brody station on the Druzhba pipeline.

Reversing the pipeline would allow Russian producers to send oil through the Druzhba pipeline to the Yuzhny terminal and then ship it to southern Europe.

Ukraine's politicians and Energy Ministry strongly oppose such plans on the grounds that it could make the country even more dependent upon Russia and jeopardise efforts to foster closer ties with the European Union.

However, should market economics prevail over such political obstacles, Russia could realise an increase in oil export capacity of between 2.89 million bpd and 4.72 million bpd until 2010,which would at least double the current 2.9 million bpd of oil export pipeline capacity.

This should be sufficient to accommodate the projected growth in oil production, especially with some of new projects in the Timan-Pechora province and on Sakhalin Island planning to build their own dedicated export outlets.

It will also help improve investment conditions for the Russian oil industry, as Western investors will have more confidence that crude can be shipped to solvent international markets and not confined to Russia's low-paying domestic market.

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