#2
Asia Times
July 4, 2002
Russia oils the world's wheels
By John Helmer

MOSCOW - As Russia's oil production continues to rise strongly, the head of the national pipeline operator, Transneft, forecasts an increase in export volumes within the next 12 months of 10 percent.

Among world oil producers, Russia is second only to Saudi Arabia as a producer and exporter. The surge in oil exports will go in several new directions, including the United States, Asia, and possibly Iran.

The latest government figures released this week show that Russian crude oil production jumped to 182.2 million tonnes in the first half of the year. That is a gain of 8.6 percent year-on-year; it is a little higher than the 7 percent growth forecasts from government officials earlier in the year.

Despite a commitment to the Organization of Petroleum Exporting Countries (OPEC) to cut back on oil sales in the same period, Russian exports through Transneft grew 2 percent in the first half to 66 million tonnes. Another 1.6 million tonnes of Russian oil bypassed the Transneft system on its way to foreign markets.

Sergei Grigoriev, vice president of Transneft, told Asia Times Online that an additional 15 million tonnes of crude oil should be pumped from Russian oilfields into export markets through several projects now under way. One is construction of a link between the central European Druzhba pipeline to the Adria pipeline in the Balkans. This, he added, would allow large tanker shipments of Russian crude out of the Croatian port of Omishalj, on the Adriatic Sea. Last month, trial cargoes of oil were dispatched to that region by tanker, for transshipment to the US.

According to Grigoriev, work has started on laying a second pipeline to the new oil port of Primorsk, near St Petersburg, which will add 6 million tonnes of export capacity. He expects this to be operational by the end of 2003. Some of the additional oil to be shipped from Primorsk will be from Kazakhstan. This is aimed at traditional consumers of North Sea oil.

Sergei Lukyanov, a Moscow analyst with Petroleum Argus, told Asia Times Online that Transneft's increase in export volume of crude oil was realistic. "It makes sense for Transneft to try and develop Primorsk as a point for exports of oil to Northwestern Europe as the volume of oil production in the North Sea will be falling, and Primorsk is located in the right place for exports of oil to this region. In order to make Primorsk more competitive, Transneft has to establish regular shipments of oil from Primorsk in the winter season using ice-class tankers."

According to Lukyanov, this is a short-term expedient, and that within five years "Transneft may be transformed from being nothing more than a pipeline operating company into a large transportation monopoly". He predicted that if Transneft's chief executive Semyon Vainshtok preserved his support from the Kremlin, he would receive government backing for increasing Transneft's leverage over transportation of oil Russia-wide.

Integration of the Druzhba and Adria pipelines, and the establishment of the new Russian oil outlet at Omishalj is to be financed by the Croatian government, Lukyanov said. He added, "Yukos and probably other oil companies are now trying to establish themselves as suppliers of oil to the US. In order to do that they have to have one or two shipments per month to the US. Omishalj port is perfect for supplies to the US, as it enables the companies to use larger VLCC tankers."

He said that once the Sakhalin offshore oilfields started producing,they would be a more cost-effective source for the US. "Most of the US refineries that use higher-sulfur crude, like Urals blend, are located on the West coast of the US. In this respect it is best to develop delivery of oil from Sakhalin." The first Sakhalin oil is expected to be shipped late in 2003 or early in 2004. Tanker trials for shipment to the Japanese and South Korean markets were conducted early this year.

Transneft is also considering a plan to modernize southward transportation of oil through a pipeline crossing Turkmenistan to Iran. Oil from Omsk, said Lukyanov, "could be piped to oil refineries in northern Iran in swaps for similar amounts of oil to be shipped from Iranian oilfields through the Persian Gulf. Such swap operations are complicated as Iran may be a difficult partner, judging by the small swap operations that have already taken place."

He also conceded that Russia's political relations with Turkmenistan were not as solid as those with China. In this respect, he added, "realization of the project for delivery to Northern Iran is less likely than construction of a new oil pipeline to China". Yukos officials, who are negotiating with Beijing, said that progress had been slow to date. Transneft is also considering piping oil due east from Siberia to the Pacific coast for shipment to China.

Exports currently amount to 38 percent of Russian crude oil production.

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