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Russia ready to take on the oil
world
By Sergei Blagov
MOSCOW
- Russian oilers have pledged to overtake Saudi Arabia
and position Russia as the world's leading oil producer
within five years. By 2009, Russian crude output could
reach 11 million barrels per day (bpd), thus surpassing
Saudi Arabia, Yukos chief executive officer Simon Kukes
announced this week. According to Kukes, new realities
compel Persian Gulf oil producers to change their "look
down" attitude toward Russia.
In 2003, Russia's
oil production rose 11 percent to 8.4 million bpd (421.4
million tonnes per year), while the country's crude-oil
exports reached 1.38 billion barrels (187 million
tonnes), or roughly 10 percent up from 2002. Ironically,
Russia may not just overtake Saudi Arabia in terms of
crude output, but also circumvent, literally, the Gulf
states by pumping Russian crude to Asian markets through
Israel.
It was hardly a coincidence that this
month an Israeli official indicated in Moscow that
Israel was interested in increased oil supplies from
Russia. Last autumn, visiting Israeli officials
mentioned a need to find a more economic way to funnel
Russian crude to Israel than shipments from Novorossiisk
port on the Black Sea.
During a visit to Moscow
from Wednesday to Friday this week, Israeli Deputy Prime
Minister and Trade Minister Ehud Olmert indicated that
he expected trade between Israel and Russia to reach
billions of dollars. Officially, Olmert's agenda in
Moscow involved trade, high tech and diamonds. However,
a task of multiplying bilateral trade, estimated at some
US$1.5 billion in 2003, is understood to require
Russia's main export commodity: oil.
Russia has
become one of Israel's leading oil suppliers, although
most transactions, reportedly in excess of $1 billion a
year, have been carried out through Cyprus-registered
entities. Late last year, there were reportedly test
shipments of Russian oil from Novorossiisk to Ashkelon
in Israel through the "Trans-Israel Pipeline", or
Tipline, then to Eilat, and then shipped again from the
Red Sea to Asia, thus bypassing the Suez Canal.
The 254-kilometer Tipline has been used in the
past to pump Egyptian crude from Egypt's Abu Rodeis
oilfields in the Sinai desert from Eilat to the
Mediterranean. The Eilat-Ashkelon pipeline system has a
throughput capacity of 55 million tonnes of crude oil
per year. Hence Russia is now moving toward supplying
Asian markets with crude using the Tipline.
In
2004, Russia is expected to pump 20 million to 30
million tonnes through the Tipline, Russian media
reported. Russia's biggest oil firm, LUKoil, and
state-owned Rosneft have been rumored to become major
suppliers.
The Tipline deal could further
strengthen Russia's position on world energy markets. By
supplying Asian markets with crude oil, Russia could
sidestep Saudi Arabia and the Gulf states.
Paradoxically, despite Moscow's stated objections, the
US-backed Baku-Tbilisi-Ceyhan (BTC) pipeline may
eventually become a part of the scheme.
At a
summit meeting in the Russian capital this month, Azeri
President Ilham Aliyev indicated that the BTC pipeline
could eventually carry Russian oil. Moscow has long
viewed this 1,760km project as an attempt to bypass
Russian pipelines by taking Caspian oil from Baku in
Azerbaijan through Tbilisi in Georgia to Ceyhan on the
Turkish coast of the Mediterranean.
Russia has
insisted that the BTC is not economically viable,
indicating that Moscow remains wary of the project.
Aliyev has visited Moscow to reassure Russia that the
BTC is not intended to damage Russia's economic
interests.
For now, Russia has urged Azerbaijan
to increase its Caspian oil shipments through the
Baku-Novorossiisk pipeline. Russian Energy Minister Igor
Yusufov said Russia had offered to reduce oil-transit
fees for Azerbaijani oil. In 2003, the Baku-Novorossiisk
pipeline carried about 2.7 million tonnes of Azerbaijani
oil, and Moscow wants to raise the amount to some 17
million tonnes.
Russia's BTC discussions with
Azerbaijan came in the wake of a major deal being
hammered out on how to finance the BTC. On February 3,
in the Azerbaijani capital Baku, Azerbaijan, Georgia and
Turkey signed $2.6 billion in a series of agreements
with oil firms, government agencies and a group of banks
to finance the BTC.
The $2.95 billion project
from Azerbaijan's and Kazakhstan's Caspian oilfields
through Georgia to Ceyhan is already half-built. The
pipeline will run 443km through Azerbaijan, 248km
through Georgia and 1,076km through Turkey. Construction
of the Azerbaijan stretch of the pipeline is due to be
completed in September. It will be laid through Georgia
by October and through Turkey by March 2005. When fully
operational early next year, the BTC is expected to
supply 50 million tonnes of oil a year from offshore
oilfields in the Caspian Sea to the Mediterranean.
Russia has long been opposed to the BTC
pipeline. Russian officials have argued that it is not
economically viable. This month, Russia's special
Caspian envoy, Deputy Foreign Minister Viktor Kalyuzhny,
claimed that the BTC would be in a difficult position
without Kazakh crude. If Russia changes its transit
policy concerning Kazakh oil, the BTC could face big
problems, Kalyuzhny warned.
The BTC's capacity
of 1 million bpd (50 million tonnes a year) was designed
largely on the premise that Kazakh oil would be part of
the flow stream. At present Kazakhstan is a mid-sized
independent oil producer, but it plans to more than
triple output to about 3 million bpd by 2015.
Moscow rushed to build an alternative transit
route to the BTC. The Caspian Pipeline Consortium's
(CPC) $2.5 billion, 1,500km line from the Tengiz
oilfield in Kazakhstan to the Russian port of
Novorossiisk on the Black Sea opened in 2001. Russia has
the biggest share in the CPC pipeline. The CPC crosses
Russian territory and pays Russian transit fees.
The CPC's capacity is at present 600,000 bpd,
and will eventually be expanded to 1.34 million bpd by
2015. The CPC is intended as competition to the BTC
concerning crude from Kazakhstan. Back in 1999, Kazakh
President Nursultan Nazarbayev pledged Kazakh oil for
the BTC. Subsequently, Nazarbayev and other Kazakh
officials "clarified" that Kazakhstan favored multiple
routes, and that the BTC was only an option. Moreover,
Kazakhstan has commissioned a feasibility study of
exporting Kazakh oil through Turkmenistan and Iran.
Meanwhile, Russia has been developing yet
another transportation scheme designed to bypass the
Suez Canal. Notably, Moscow pledged to back the
Azerbaijani bid to join the so-called North-South
Corridor, according to a bilateral declaration signed in
Moscow on February 6.
Russia is keen to make the
North-South transport connection a viable alternative to
Red Sea routes. An alternative transport link from Asia
to Europe - from Mumbai, India, to the Caspian port of
Olya in the Astrakhan region via Bandar Abbas in Iran -
is expected to bring Russia billions of dollars in
revenues.
Russia, Iran and India signed an
agreement on the development of the North-South corridor
in September 2000. Russia estimates that the North-South
link will be able to handle some 15 million to 20
million tonnes of freight per year, hence becoming a
rival of the Suez Canal. The route would be a channel
for goods shipped to and from Russia, as well as an
alternative transit route between Asia and Europe.
However, millions of dollars need to be spent to
make the North-South corridor a viable alternative to
customary Red Sea routes. It also remains to be seen
whether the North-South link could eventually include
oil pipelines to funnel Caspian oil through Iran.
(Copyright 2004 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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