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Russian pipeline agency master of the
game
By John Helmer
MOSCOW -
The decision last week by the Russian government to
authorize the start of the Russian crude-oil pipeline to
Daqing in northern China was one of several victories
that Transneft, the Moscow-based, state-controlled
pipeline operator, has notched up in recent days.
An announcement by Prime Minister Mikhail
Kasyanov, days ahead of the scheduled cabinet meeting to
consider the issue, confirmed that the construction of
the pipeline in partnership with the China National
Petroleum Corp (CNPC) will go ahead. The CNPC has
already started work on the 1,500-kilometer section of
the line between the Russian border and Daqing, and
officials in Beijing were not in doubt about the outcome
of the review by the Russian prime ministry since March,
when oil-industry sources initially told Asia Times
Online that Transneft had defeated lobbying for other
pipeline routes.
Kasyanov said there is
insufficient oil volume for the foreseeable future to
justify building a pipeline across eastern Siberia to
the port of Nakhodka. Transneft has been saying exactly
this in its recommendations to the government for many
months. For the time being, this announcement closes off
a Japanese government bid to draw the Russian crude by
helping to finance the Nakhodka route. Substantial
volumes of new Russian crude will be channeled to Japan,
however, starting in two years' time, when the first of
the Sakhalin offshore oilfields begins regular
production. Shipments will be made by pipeline across
Sakhalin island and under the Tartar Strait to the newly
expanded Russian port of De Kastri, and from there by
tanker southward to Japan and South Korea.
The
Russian cabinet was to have made a decision on new
pipeline routes in mid-March. But after lobbying by the
Russian oil companies, the cabinet review was postponed
until now. Transneft has also persuaded the Kremlin to
put Transneft in full control of the China project, and
to exclude Yukos, the oil-production leader, from the
financing, which is to be arranged between the Russian
and Chinese governments in a debt swap. Sergei
Grigoriev, a senior vice president of Transneft, told
ATol he "can't say anything about the financing formula
for the China pipeline yet, except that it will be
arranged by Transneft". He noted that, if necessary,
Transneft has ample borrowing capacity for the project,
whose construction and start-up costs on the Russian
side of the border have been estimated at about US$1.5
billion. "At present," said Grigoriev, "Transneft has no
borrowing abroad, since it paid off in advance a $150
million loan from Raiffeisen Bank (Austria). There is
also practically no Russian debt either."
Kasyanov and Energy Minister Igor Yusufov have
been under pressure from the domestic oil companies to
eliminate Transneft's pipeline monopoly, but the Kremlin
has remained firmly behind Transneft, which is headed by
Semyon Vainshtok. According to Grigoriev, Yukos is still
lobbying the government to allow it to construct and
finance the China line.
Executives from Yukos
and other local oil companies have attacked the
government for failing to allow export outlets by
pipeline and port to keep pace with oilfield growth.
Some have even threatened that if pipeline access isn't
expanded rapidly, either through government or
commercial investment, the oil companies may cut back on
output, thereby striking directly at the treasury's tax
take from the sector. Transneft officials have reacted
by accusing the oil companies of bluffing.
Transneft has also announced significant
capacity additions to the Baltic Pipeline System linking
the West Siberian oil basin and the Gulf of Finland port
of Primorsk. Existing throughput of 12 million tonnes of
crude per annum (233,000 barrels per day) will be raised
within two years to 42 million tonnes (820,000 bpd),
with a maximum level of 50 million tonnes (1 million
bpd).
According to recent data, Russia's
crude-oil production in March grew 11.7 percent month on
month, to hit 34.54 million tonnes (8.13 million bpd).
Year-on-year growth of output was 11 percent. The
first-quarter figures show that monthly growth in export
volumes of crude oil via Transneft's pipeline system has
been strong. In March exports grew 8 percent month on
month to 14.2 million tonnes (3.35 million bpd); in the
first quarter export volumes reached 39.2 million tonnes
(3.18 million bpd), which represents a year on year gain
of 6.5 percent. Exports via the pipeline system were
expected to grow further in April by at least 100,000
bpd, as shipments through the Druzhba network into
Central Europe were supplemented by the Kholmogory-Klin
line, which has been underutilized for shipment of the
export crude blends.
Last November, Yukos was
one of four commercial oil producers - LUKoil, Tyumen
Oil Co (TNK) and Sibneft were the others - who announced
that they had formed a consortium to build a new
pipeline and deepwater oil shipment terminal at
Murmansk, in northwestern Russia. Murmansk does not
become icebound in winter, and its port is potentially
deep enough to allow loading of very large crude
carriers (VLCCs) for deliveries to the United States.
The US media have made much of the $4.5 billion Murmansk
project as Russia's new gateway to the United States.
Transneft takes a different view, however, and
according to Grigoriev, the recent consolidations
between TNK and British Petroleum, and between Yukos and
Sibneft, will have no impact on the future of the
Murmansk proposals. "Whatever happens to the oil
companies is not relevant to the Murmansk project," he
told ATol. "So far all we have is an idea - no details
of the project. The government has adopted a decision to
pursue a feasibility study to see if it is a euphoric
dream of the oil companies to develop a northern route."
He noted that if the oil companies had been serious
about the project, they would have already started on
feasibility studies themselves. "It is noteworthy,"
Grigoriev told ATol, "that it is the government that has
decided to make the study. Such a study doesn't require
a decision from the cabinet [if the oil companies wish].
This means that the state will be the directing
authority of the project."
Industry analysts in
Moscow agree that, despite their ample cash flows,
Russian oilmen prefer to take very large cash dividends
for themselves, and concentrate their relatively modest
capital spending programs on enhancing production at the
western Siberian oilfields that were first prospected
and developed in the Soviet period, then acquired
cheaply during the Yeltsin-era privatizations. Yukos is
the only one of the leading producers to have spent
substantially on acquisition of non-production assets,
but these have been concentrated on refineries inside
and outside Russia to assure downstream market demand
for the rising supply of Yukos crude. The Russian oilmen
prefer to seek foreign financing for new oilfield
development, and part of the reason for the sale of TNK
and Sibneft is that both companies had reached their
debt ceiling.
The reason Transneft believes the
Murmansk project is a bluff by the oil companies is that
the latter haven't the will to spend cash for the
long-term payoff that such projects require.
According to Grigoriev, it may not be needed for
at least a decade. "Murmansk was never a priority," he
told ATol. "The priorities are, firstly, the Baltic
Pipeline System [to Primorsk]; then the Angarsk to
Daqing pipeline; and then the Druzhba extension [to the
Croatian port of Omisalj]. Only after all this comes
Murmansk. The oil companies have been lobbying for
additional pipeline capacity. Now they are not in such a
desperate situation." Grigoriev added that the Murmansk
feasibility study will take up to two years to complete.
"It is not certain it will be necessary."
Last
month Energy Minister Yusufov announced that he favors
giving an equity stake in the Murmansk project to the
oilmen. This has been claimed by the oil-company
lobbyists as a victory over Transneft. Grigoriev told
ATol it is nothing of the sort. "Kasyanov and Yusufov
were slightly expanding on what the role of the
companies might be. At first, it was said that the
Murmansk pipeline would be fully state-owned. However,
if Transneft completes all its priority projects, it may
be at its borrowing limit, so there may be room for the
oil companies to have some shares. But equity won't
change the fact that the project will be fully operated
by the state." He noted that Transneft itself is 75
percent state-owned, with 25 percent of preference
shares in private hands. "These dividends don't
influence policymaking," he added.
On another
front if the battle over oil export outlets, Transneft
has fought off the oil companies' bid to reopen pipeline
shipments to the Latvian port of Ventspils. Starting
January 1, all pipeline deliveries to Ventspils were
halted on Kremlin order, and the oil redirected
northeast to the Russian port of Primorsk. According to
Sergei Lukyanov, director of Petroleum Argus in Moscow,
the stoppage raised costs for Russian oil shippers,
because charter rates at Primorsk were running at $2.40
per barrel, compared with $1.70 per barrel at Ventspils.
"Deliveries from Primorsk," he said, "are also usually
made in shipments of up to 110,000 tonnes of oil, very
rarely in 130,000-tonne shipments. This is thus more
expensive compared to Ventspils. The losses of Russian
oil companies due to the higher transportation costs are
obvious. Primorsk's location is such that in the winter
period it is the most difficult Russian port in terms of
the ice situation, and one of the most difficult ports
on the Baltic."
Ventspils can export between
300,000 and 400,000 barrels per day, Russian sources
claim, and as oil production continues to mount, the oil
company lobbyists have pressed government officials to
lift the embargo on Ventspils. According to Grigoriev,
Transneft cannot supply both Ventspils and Primorsk with
the existing pipeline capacity. Speculation in the
Russian press has accused Transneft of withholding the
oil to soften up the Latvians to permit Transneft to buy
a 34 percent stake in the port. The Latvians have
accused the Russians of imposing an oil blockade for a
combination of political and commercial reasons.
The Russian government's refusal in April to
resume crude oil shipments by pipeline to Ventspils was
another victory by Transneft. Grigoriev told ATol "the
Latvians have persuaded [US President George W] Bush
there is an economic blockade. However, rail deliveries
of crude are expanding, and Transnefteprodukt [the
Russian refined products pipeline agency] has raised its
deliveries by 50 percent. If there was a political
decision, all deliveries would have stopped. It's a
mistake of the Latvian authorities to make this
political, instead of looking for a practical solution."
Grigoriev acknowledged that Transneft has been
negotiating with Ventspils for a stake in the port. But
he told ATol that "the asking price of $70 million is
incorrect and immodest".
(©2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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