Oil Transport Strategy
Transneft and Oil Export Capacity
Severe weather conditions in the Gulf of Finland and in the port of St. Petersburg
The press summaries are based on several sources, such as Russian Energy, Neftetrasport, Russian Petroleum Investor, Interfax Petroleum News, Moscow Times, Kommersant, web journals as well as homepages of oil and transportation companies etc.
Use of any knowledge, information or data contained in these articles shall be at the user's sole risk. Editors shall not be liable or responsible for the use of this knowledge.
Oil Transport Strategy
Russia's draft transport strategy for the period until 2025, which the government will consider on December 18, stipulates the development of four export pipeline systems:
- Enlarging the Baltic pipeline system to 62 million tonnes a year is a fundamental task in developing infrastructure.
- The construction of the Angarsk-Nakhodka oil pipeline with an extension to Daqing in China will make it possible to supply 30 million tonnes of oil a year to China and 50 million tonnes of oil a year via the Port of Nakhodka to Japan and Korea.
- The construction of an oil pipeline from Western Siberia to Murmansk and the oil terminal in Murmansk will make it possible to supply 60-70 million tonnes of oil a year at first, and 120 million tonnes a year in the future.
- The merging of the Druzhba and Adria oil pipelines will form an export route through the deepwater port of Omisalj in Croatia. The port can service oil tankers with deadweight of up to 500,000 tonnes. Russian oil export by this route will be increased to 15 million tonnes a year.
The strategy says that the development of pipelines in the country's east will meet the objectives of a steady gas supply to Russian consumers, reconstruction, enlargement and modernization of oil and gas systems. (11.12.03 LL)
Transneft and oil export capacity
Press Summary Fall 2003
The discussion on the Russian oil export capacity, private pipelines and the exports over Ventspils has continued in the press.
Transneft claims that there is no capacity to export over Ventspils. This is said to be due to the increased capacity of Transneft's own terminal at Primorsk. This terminal increased its capacity to 18 million tons per year (360,000 bpd) in July. The capacity is to be increased to 30 million tons by the end of 2003 and to 42 million tons per year by July 2004. This would bring Primorsk close to being the largest export terminal in Russia. Only Novorossiisk is bigger with 46 million tons per year. The capacity of Novorossijsk is to be increased to 47 million tons by the end of 2003. One limiting factor at Novorossiisk is the need to transit the Straits of Bosporus. Several players have made plans to tranship cargoes from Ural to larger size tankers for further shipment to North America. However, almost all of these exercises have failed due to difficult logistics. Most lately BP planned to tranship at Malta, but cancelled the operation.
Transneft could consider re-entering Ventspils, if it alone, or together with Russian interests, gets a 50% stake in the terminal. Today, Ventspils Nafta owns 37% of the terminal. The rest is owned by the Latvian Government. A second privatisation round is planned later this year. This may be stopped, if discrepancies are found in the investigation into the first privatisation round.
Transneft has given the Latvian Government one year to decide on Ventspils. Within this time frame Transneft could consider re-entering Ventspils. Latvia hopes for getting help from the EU in its efforts to find a solution. The Latvian Economy Minister has expressed his interest in bringing Ventspils back as the major transit corridor between Russian producers and Western markets. The Latvian Government's plan is expected to be a mix of Western and Russian interests taking over Ventspils.
Transneft says that it will be able to export 180 million tons per year by the end of 2003 and 190 million tons per year by June 2004. The growth has mainly come from the increased capacity of Primorsk, but also from increased shipments along the Druzhba pipeline to Gdansk (140,000 tons in June). Transneft is said to be carrying anything between 50 and 75 percent of the Russian export. According to ministry officials, the present capacity is at a good strategic level. The question is how the growing production (11% increase 2002 - 2003) and the reluctance towards private pipelines can be combined with a strategic level of pipeline capacity, if this level is not in proportion to the production capacity.
Transneft is under pressure also in other directions than Latvia. It has, after discussions, come to an agreement with the oil majors who wish to develop a terminal in Murmansk. Transneft will make a feasibility study of the terminal and the oil pipeline. This should take a year and the results will be presented to the Russian Government. It is still unclear if Transneft will be the owner in case the project materialises. According to Transneft CEO Semyon Vainshtok, Transneft should manage the pipeline. He claims that state-owned companies are more efficient in this task. This is not the view of Yukos CEO Mikhail Khodorkovsky, who is also arguing with Transneft about the routing of a Far-Eastern pipeline. Transneft is planning a route to Nakhodka, while Yukos plans a route to Daqing, China.
Plans for other ports and terminals
The main focus, without a question, is on the Primorsk terminal. At the same time, there are some other developments. Lukoil is building the terminal at Vysotsk in the Gulf of Finland and has placed orders for railcar and marine loading arms. Lukoil's export of refined products has gone up by 16% year by year and is expected to continue to rise due to the development of Vysotsk. The first stage should be ready in November 2003 and will bring the capacity to 1 million tons of crude oil and 1.5 million tons of fuel oil. The total terminal investment is said to be USD 300 million for a terminal with a capacity of 10.6 million tons.
In the north, Rosneft and Norilsk Nickel have signed a memorandum on co-operation to develop the Arkhangelsk commercial seaport. Dredging is planned to allow for larger vessels to enter the port. The two companies will also work out a common icebreaking support scheme for shipping cargo from the Yenisey region. They also intend to develop and pursue a common policy in using and developing the infrastructure of the Northern Sea Route.
Investments are also required elsewhere. In Russia, containers are used to a much smaller extent than in many other countries. Only one percent of the freight in Russia and the CIS is containerised. The use of containers would require significant investments in infrastructure. In the Baltic, there is only one operator for all the container traffic. This monopoly may be one of the reasons why St Petersburg is the most expensive port in Europe today. Storage costs in St Petersburg are 12 times higher than in the West. The situation is made even worse by the fact that the operations are slow. In Amsterdam, a container spends only 45 minutes in port, while in St Petersburg it stays for 10-15 days.
September 2003
Severe weather conditions in the Gulf of Finland and in the port of St. Petersburg
The ice conditions in the Gulf of Finland have been severe this winter. Thick level ice and ridges have severely affected the ship traffic to the harbours at the bottom of the Gulf, among them St. Petersburg. Tens of ships have been forced to wait for icebreaker assistance and large amounts of railcars have been waiting in the port for offloading of cargo into the ships.
The shortage of capable assisting icebreakers has limited the heavy growth in the port of St. Petersburg. The traffic volume has been at the same level as last year despite the heavy ice conditions. The icebreaker fleet has been relocated to support the heavy traffic in the Gulf of Finland.
The Russian icebreaker fleet is under severe pressure. Many of the icebreakers are expected to come to the end of their economical life and would need to be replaced, especially in the conditions of increased traffic. However, at the present the government has allocated all financial resources for completion of the nuclear icebreaker 50 Let Pobedy, which leaves no resources for other new constructions and/or upgrading of other icebreakers. A program for the renewal of the fleet will be made in the beginning of this year.
It has also been made clear that all icebreaker support in Russian waters has to be performed by Russian icebreakers. This was a response to a request by a freight agent, who wanted to bring in his own icebreaker. (The Moscow Times, The St. Petersburg Times, SeaNews February 2003 )
No Transneft oil to Ventspils
Several articles have discussed the decision by Transneft, the Russian oil pipeline monopoly, to halt all oil deliveries though the Latvian port of Ventspils, once the main outlet of Soviet oil. Transneft has shot down all oil deliveries to Ventspils from the beginning of 2003 and was not expected to continue oil deliveries before April.
Transneft has informed that the reason is high transit costs and the wish by its clients to use other export routes. Transneft is instead using its own export terminal in Primorsk, northwest of St. Petersburg. This winter, when the ice conditions in the Gulf of Finland have been severe, oil shipments out Primorsk have delayed due to shortage of capable tonnage and lack of assisting icebreakers. Speculations in the press have considered the reason for Transneft's actions to be to put pressure on the political decision makers in Ventspils to sell the oil terminal for a low price to Transneft. Transneft oil is the totally dominating product to be shipped out of Ventspils.
Some oil companies have shifted to the use of railcars to transport oil to Ventspils, but this is much more costly than by pipeline. Several oil companies have tried to put pressure on Transneft, claiming that the present system does not provide sufficient export capacity. The oil companies complain about the losses that occur, when the export price is at a level of 30 USD/bbl and the domestic Russian price is at a level of 5 USD/bbl. The low domestic price level is due to the high level of supply. The oil companies have increased their production, but have been forced to sell it on the Russian market due to export capacity shortage. In some cases, this over supply has led to shut-down of wells.
Alternative routes have already been discussed and the capacity of the Druzhba pipeline has been increased. The four major oil companies have also presented, and signed a letter of intent to build a pipeline from Western Siberia to Murmansk, where a large export terminal would be built. Prime minister Kasyanov has commented this initiative by repeating the oil and gas pipelines will stay in the control of the government. (The Moscow Times, The St. Petersburg Times, SeaNews February 2003)
The discussion on the pipeline export capacity continues
The discussion on the limited export capacity in Russia has continued in the press. It now seems clear that the Baltic Pipeline System will enter into Phase 2, increasing the capacity at the terminal of Primorsk to 30 million tons per year. Even larger volumes have been mentioned. The new pipeline branch would link Yaroslavl and Primorsk. According to the some articles, the capacity could be increased to 18 million tons per annum already in November of 2003. An expansion to a 30 million ton capacity is said to cost 1.3 billion USD.
Transneft is limiting the export of oil by their pipeline system to one third of the production of each oil company. The rest has to be transported by other means. This has not limited some oil companies, like Yukos, who increased its oil export by more than 30 percent in 2002. More than one third of Yukos export was performed by other means than the Transneft pipelines.
The discussion on private pipelines also continues. There have been views from the political side that a monopoly in the pipeline business is as unacceptable as it is in the power distribution business (where it is being dismantled). Monopoly corrupts and an absolute monopoly corrupts absolutely. The support for private pipelines has come from both people close to president Putin as from the political opposition. (The Moscow Times, The St. Petersburg Times, SeaNews March 2003)