MOSCOW - Russia has sent signals that it could
clear the way for the construction of private oil
pipelines as a way to increase petroleum exports to the
West. The move, if it takes place, would signal an end
to the long battle between Russia's private oil
companies and the state pipeline monopoly Transneft,
opening the door to a US$4.5 billion project for
shipping oil to the United States and other Western
markets.
Russia's oil pipeline monopoly OAO
Transneft opposes the private project, which would build
a line from western Siberia to the ice-free Arctic port
Murmansk. Despite its distance, Murmansk is closer to
the US market than the Persian Gulf.
Russia's
oil majors - led by embattled Yukos, including LUKoil,
Tyumen Oil Company and Sibneft - have been lobbying in
favor of a new US export route through the Arctic port
of Murmansk. The project, which is scheduled to start
exporting in 2007, would pump up to 80 million tons of
oil per year, or 1.6 million barrels per day.
By
building private pipelines, Russian private companies
aim to be free of direct Transneft control over export
volumes and transit fees. For instance, Transneft has
requested a tariff increase of 9-11% in 2004. Transneft
didn't increase the fees it charges oil companies in
2003 but it requires hikes this year to finance pipeline
expansion and upgrades along existing routes.
Transneft, which now ships most of Russia's oil,
boosted the capacity of an oil pipeline and a Baltic Sea
oil port by two-thirds earlier last November and
expanded the link by another 40% in early 2004. The
pipeline and the Primorsk port will be hauling 845,000
barrels per day (bpd) by spring.
Transneft said
it spent about $700 million to build the pipeline and
the oil terminal at Primorsk, north of St Petersburg,
and plans to spend another $500 million on expansion.
In the meantime, government control over Russian
oil pipelines has been cited as yet another hurdle
hampering development of the country's oil market.
Russia has 46,800 kilometers of pipeline, some of which
is more than 30 years old. Some pipelines have been
modernized, but modernization of the trunk pipeline
network remains a priority. The existing pipeline
network operates at 99% capacity, limiting Russian oil
exports to 4 million bpd.
There are also
important new pipeline projects such as the
Yamal-Germany project, which will require the
installation of 12,000 kilometers of large diameter
pipeline; or the $5 billion North European Pipeline
designed to deliver 30 billion cubic meters of gas to
Germany, the Netherlands and the United Kingdom.
The government-controlled monopolies that
control Russian oil transport and the natural gas sector
are stunting industrial growth and undermining the
interests of the state and of oil corporations, Russian
LUKoil's founder and chief Vagit Alekperov stated last
year. "It is obvious today that state monopolism in any
of its manifestations hinders the development of the
Russian oil and gas sector," Alekperov said.
Russian companies "have all the necessary
resources" to boost production to 10-11 million bpd by
2010, from 8 mm bpd at present, Alekperov claimed,
adding that the only obstacle blocking this growth was
the lack of space in the country's crowded pipelines.
"Russia has an acute need for 2.6-3 million bpd of new
pipeline and loading capacity," he said. But it was
practically impossible to attract the $10 billion to $15
billion needed to finance such an expansion as long as
the construction and operation of pipelines remained
under the control of a state monopoly, he said. LUKoil's
leader stopped short of naming either state-run pipeline
monopoly Transneft, which controls Russia's oil pipeline
network, or gas giant Gazprom, also controlled by the
state.
The moves to expand capacity of the
Russian oil pipeline system have been seen as an
indication that Moscow will keep raising production and
challenging the Organization for Petroleum Exporting
Countries (OPEC), while pursuing policies aimed at the
US market. Russian companies are trying to capture a 10%
share of the US oil market, offering an alternative to
OPEC. In 2003, Russian oil accounted for about 1% of US
imports.
Russia is sitting on the world's
richest natural wealth, priding itself with an
impressive ranking in the oil ratings. With the
country's proven 12 billion tonnes of oil deposits,
Russia is the world's second biggest oil producer -
after Saudi Arabia - generating some 8 million bpd. It
is also the world's biggest natural gas producer.
Russia's natural gas output reached 580 billion cubic
meters in 2002, while the country's reserves are some 47
trillion cubic meters.
Subsequently, since 2000,
Russian economic growth has been driven by the oil and
gas sectors. Despite a history of resistance to foreign
participation in the industry, Russian companies now
increasingly appear to see partnerships with foreigners
as an acceptable compromise between the perceived need
to keep the industry in Russian hands and the need to
attract foreign investments.
The Russian
Ministry of Energy believes that foreign investment of
up to $70 billion could be attracted into Russia's oil
sector over the coming decade. Offshore the Russians are
looking to develop oil and gas reserves in the Northern
Seas (Barents, Kara, Pechora & Chukotka Seas),
Sakhalin, the Black Sea and the Caspian Sea. Future
onshore oil exploration work is focused on a number of
sites in Western Siberia (Tyumen, the Yamal Peninsula,
Khanti-Mansiisk, Tomsk, Omsk, Novosibirsk), European
North (Arkhangelsk, Komi, Yamal Nenets and Timan
Pechora) Volga-Urals (Udmurtiya, Orenburg) and Eastern
Siberia.
Yet despite some domestic hurdles,
Russia's rising oil output has confounded OPEC. In spite
of growing oversupply and a government promise to cut
back, Russian producers are showing no signs of slowing
down. In January 2002, the Russian government indicated
it was considering a plan to create a strategic oil
reserve, which could help to sop up the excess. But no
more has been heard of the idea. Russia has been
keen to cooperate with OPEC as an "independent" oil
producer, presumably so as to buoy oil prices in the
near term. Riding on top of hydrocarbon exports, Russian
government officials have depicted a rosy picture of the
country's booming economy.
President Vladimir
Putin has promised to double the country's gross
domestic product by 2010 and pledged that the average
Russian will "be happy" also by 2010, although that
magic date is well after the expiration of his maximum
constitutional presidential term. However, there have
been warnings that continued over-reliance on oil and
gas may eventually push the nation into a vicious circle
of debt crises and an increasing dependence on commodity
prices, a pattern all too familiar to developing
nations.
(Posted with permission from KWR
International, Inc, a consulting firm
specializing in the delivery of research, communications
and advisory services.)
