#7
Moscow News
June 5-11, 2002
Russian Oil for the States
Mikhail Klasson

The treaty on the limitation of strategic offensive weapons that the presidents of Russia and the United States signed during their Moscow summit has upstaged another document of considerable importance - the memorandum on energy. When put into effect, it could bring Russia tens of billions of dollars in investments

To enhance bilateral relations, Presidents Vladimir Putin and George W. Bush agreed to start a new dialogue on energy to provide a good basis for fostering cooperation between Russian and American companies in prospecting for mineral deposits, extracting and processing hydrocarbons, transporting and marketing mineral products, and also in carrying out joint projects, including for third countries. One project calls for giving Russian fuel broader access to world markets, which is feasible if Russia develops its seaport and transportation infrastructure.

This country is most keen to sell petroleum and liquefied gas to the United States. According to Russian Deputy Prime Minister Viktor Khristenko, we need to have deep-water ports where supertankers of 150,000 tonnes displacement and larger can be loaded. Because Russia does not have ports that can accommodate such tankers, it has to resort to transshipment.

Russian oil companies will be able to use Croatia's deep-water Adriatic port of Omisalj upon completion of a $40 million project to integrate the Druzhba and Adria pipelines, which will increase the pipeline system's capacity to 15 million tonnes of oil a year. In the absence of a similar pipeline facility, tankers have to cover a distance of 8,500 to 9,000 km between the Adriatic Sea and the Atlantic coast of the United States.

Pipeline integration had long been delayed for lack of consensus on a single transit tariff for the six nations involved - Russia, Belarus, Ukraine, Hungary, Slovakia and Croatia. Agreement was recently reached on a rate of $0.6 per tonne of oil for every 100 km of pipeline. According to Russian pipeline operator Transneft's Vice President Sergei Grigoryev, an agreement has been achieved with most participants in the project. The document only needs the approval of the Hungarian company MOL. But an intergovernmental treaty has to be signed before the construction of the project can start.

According to Dmitry Druzhinin, an analyst with investment company Prospekt, oil deliveries from Sakhalin (as Khristenko had also pointed out) could be more profitable as the United States' Pacific coast is only 7,000 to 8,000 km away from the island, where the Sakhalin-2 project was already producing oil.

Sakhalin Energy, the technical director of Sakhalin-2, plans to build on the island a gas liquefying plant with a capacity of 10 million tonnes a year. When the plant comes into service, tankers will be able to take oil as well as liquefied natural gas from Sakhalin to the United States. And in 2005, the Sakhali-1 project too will start oozing oil.

As American companies are participating in both projects, any Russian bureaucrat who will try to throw a spanner in the works will have President Putin to reckon with.

Khristenko noted that Russian oil could also be carried to the United States via the northern export route. If a terminal were built at the ice-free seaport of Murmansk, it would be possible to export from there oil from the Timano-Pechora field. Such a project is proposed by LUKoil, which suggests taking the oil to Murmansk by small icebreaker tankers (a voyage of more than 1,000 km).

But Prospekt's Druzhinin thinks that despite the feasibility of making the 8,000 to 9,000 km run from Murmansk to the U.S. Pacific coast, two transshipments would make delivery costs too high. Besides, it remains to be seen whether American companies would risk making multibillion investments in such a project. To induce them to come forward with their money, they would have to be offered really attractive terms, plus guarantees from the United States' Investments Insurance Agency.

All these matters will be examined by a Russian-American working group for cooperation in the field of energy, which is in the making. The group's findings will be sent out to all levels of government in Russia and the United States - and to future meetings between the two presidents - as stipulated by the Bush-Putin memorandum.

Nonetheless, it will take at least three to four years for Russian bulk oil to appear on the American market, Druzhinin said.

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