Pacific Oil Terminal Location - Transneft Yielding? (3.2.2006)
Planners of the Eastern Siberian - Pacific Ocean pipeline (ESPO) are now considering several options for the terminal location of the giant pipeline. National pipeline operator Transneft's heavy campaign to assure the selection of Perevoznaya Bay as the endpoint for the pipeline has not blinded the decisionmakers. Due to the unsatisfying feasibility study process, the selection of the terminal location has been returned to the starting point.
No Ice Troubles in the Gulf of Finland (25.1.2006)
The winter has so far been mild favouring oil shipments in the Gulf of Finland. The recent icy temperatures in Eastern and Northern Europe sped up the ice formation, but not as dramatically as a cold weather during early winter would have done.
Russia Soon Self-sufficient in the Production of Oil and Gas Pipelines (12.9.2005)
Russia will soon be self-sufficient in the production of large, 1,020-1,420 mm diameter oil and gas transportation pipes. Developing their own pipe manufacturing is important for Russia, because it is ready to implement large oil and gas infrastructure projects, which will increase oil and gas exports. The needs of the growing eastern giants India and China have heated up the steel markets and the prices have gone up sky-high, causing budget problems in infrastructure projects in other parts of the world.
The Rise and the Fall of the Ust-Luga Terminal Projects (29.08.2005)
During the past few years, the need for efficient oil export routes has attracted investments to the shores of the Baltic Sea. Despite the high oil prices and the lack of export corridors, several recently activated export terminal plans have been brought to halt within a few months time. Also Gazprom, who announced a Baltic LNG terminal venture in April, seems to have changed its mind over the summer.
NOVATEK Challenging Gazprom's Hegemony in the NGL Markets (08.07.2005)
Russia's largest independent gas producer and the second-largest natural gas producer Novatek announced in June that it had started condensate shipments through it's new terminal by the White Sea after opening a condensate processing plant in Western Siberia. The investments bring long-awaited alleviation to the acute problems related to reserve depletion and export transportation of the products.
Indiga on a Break (29.06.2005)
Transneft has suspended preparations for a feasibility study regarding the construction of the Northern pipeline from Kharyaga to Indiga. LUKoil has put two and two together and is now getting serious with the expansion of the Varandey export terminal.
The Pacific Pipeline: The Hot Potato (28.06.2005)
Heated discussion around the planned new pipeline is centering around the environmental concerns regarding the Lake Baikal. In May, the governmental body overseeing the subsoil use (Rosprirodnadzor) found evidence that Transneft's subcontractor had conducted tree cuttings in a protected forest area near the shore of Baikal. Environmentalist fear, that Transneft is overconfident about its environmental protection solutions, risking the safety of the UNESCO World Heritage area and the biggest fresh water reserve in the world.
The Pacific Pipeline (06.06.2005)
Russia's largest infrastructure project to date, the Eastern Siberia - Pacific Ocean pipeline project (ESPO), is a serious test to the country's environmental protection institutions. The pipeline and the proposed terminal location are a threat to Lake Baikal and the Amur Bay at the coast of the Pacific Ocean. The Amur Bay is the only home to many endangered species, like the Amur leopard. How much will the ecological values weigh against the enormous economical effects in the minds of the decision makers?
Sovcomflot Sailing Before the Wind (26.05.2005)
Sovcomflot, Russia's largest shipping company is enjoying strong tailwinds of the growing oil industry. During 2001-2008 the company undergoes a fleet renewal program, including the construction of 43 new vessels. Sovcomflot is about to revolutionise the Baltic oil shipping with its Baltic Max tanker type. The company also intends to join Gazprom's Baltic LNG project with a 20% share.
Oil Shipping is Big Business (19.05.2005)
Freight deliveries have tripled during the past few years in Russia. Last year, more than $5 billion was spent to ship Russian oil to foreign markets. Still, Russian oil companies themselves are not eager to engage in the shipping business. A new law has been proposed recently to create a Russian International ship register. This might change the situation. The oil companies have to be quick in their decisions - the sell-off of the Russian trade fleet might begin this year.
Arctic Shipping Conference in Helsinki (16.05.2005)
The first international Arctic Shipping Conference was held in Helsinki, 27-28 April 2005. There has been a sharp increase in arctic sea transport, particularly after the exploitation of oil and gas deposits in Northern Russia and along its Arctic coast started. The shortage of oil tankers suitable for arctic conditions has been remedied, but a new challenge is how to ensure a sufficient number of icebreakers.
Joint Efforts to Develop Varandey Export Terminal (09.04.2005)
LUKoil and Arktikshelfneftegaz signed a protocol which envisages the two companies' cooperation within development of oil export infrastructure in the North.
Tambeineftegaz Submits Yamal LNG Project to Government (04.04.2005)
The Yuzhno-Tembeiskoye LNG works construction phase plans have been submitted for evaluation to the RF Ministry of Economic Development and Trade. The plant is to be completed by early 2009. The national gas-giant Gazprom has announced its interest to join the project.
Barents Pipeline - "To Be or Not to Be?" (11.03.2005)
In late February 2005 the Russian pipeline monopoly Transneft announced new plans for the Barents Pipeline project. Transneft has decided to abandon the link from Surgut in Western Siberia, and instead wants to utilize the Kharyaga oil hub as a starting point for the new line. The delays are threatening oil field development in the area. Investors, including the French Total, are reporting problems in their projects due to lack of export routes.
The Development of Russian Crude Export by the Baltic Sea 2003 - 2004 (10.02.2005)
The Russian crude export has grown strongly for the past few years. In 2002 the total export volume was 151 mln tons and by 2004 it had grown up to 197 mln tons. The export pipeline network is filled to its capacity. As a result, sea and train transports have increased. Most of the growth in sea transports is a direct result of the Baltic pipeline system and the Primorsk terminal expansions.
Krasin - The Heroic Icebreaker (08.02.2005)
In December, the Russian icebreaker Krasin was sent to assist American supply vessels to the McMurdo Antarctic Research Center. The McMurdo station had risked evacuation due to lack of supplies.
The Eastern Pipeline Project (27.01.2005)
Towards the end of year 2004, the discussion around the Pacific Pipeline project intensified. Finally, on December 28th, the Russian government announced that the decision on the pipeline route had been made.
Traffic on the Baltic Sea Growing Further (10.01.2005)
The export capacity of Primorsk terminal has grown rapidly since the Baltic Pipeline System was commissioned in December 2001. In 2003 the capacity reached 30 mln tons, and in 2004 it was expanded to 50 mln tons annually. In December 2004 the Russian government approved the expansion of the BPS by 10 mln tons to 60 mln tons. Also LUKoil increases crude and products exports via Vysotsk. The rapid growth has meant great changes for the overall traffic volumes in the Gulf of Finland. It is feared, that the transports will soon be restrained by the lack of proper icebreaker assistance.
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.
Pacific Oil Terminal Location - Transneft Yielding?
03.02.2006
Planners of the Eastern Siberian - Pacific Ocean pipeline (ESPO) are now considering several options for the terminal location of the giant pipeline. National pipeline operator Transneft's heavy campaign to assure the selection of Perevoznaya Bay as the endpoint for the pipeline has not convinced the decisionmakers. Due to the unsatisfying feasibility study process, the selection of the terminal location has been returned to the original location.
In May 2002, after choosing Perevoznaya Bay as the only candidate for the terminal location of the pipeline, Transneft hired Far Eastern Scientific Research and Design Institute DNIIMF to prepare a feasibility study. All alternative locations were rejected, even though according to Russian law, several options are to be considered in such cases. DNIIMF had already completed the study in July 2002. Sojuzmorniiproekt institute was hired by the Russian government to examine the study. Although several serious errors were found, the draft study was included in the final feasibility study of the whole ESPO project - in an almost unchanged form.
The insufficient study did not convince the governmental experts, who one by one refused consent of the feasibility study. It now seems, that Perevoznaya Bay, an area of high ecological and recreational value, will at least be compared with other alternatives.
Currently the strongest contender is Vostochny area. The exact location, Nakhodka, is a developed industrial area with a railway connection and suitable navigational conditions. Nakhodka has received support from several ministers, including the Minister of Transport Igor Levitin, Minister of Natural Resources Yuri Trutnev and Minister of Economic Development & Trade German Gref. Is there anything Transneft can do but to yield?
Finally, at the very end of last year, Transneft's president Semyon Vainshtok admitted, that Transneft is no longer insisting on Perevoznaya as the only option. The situation was predictable after the flow chart for the ESPO project was signed by the Minister of Industry & Energy Viktor Khristenko - and the terminal location was not.
The pipeline construction work is to start at the beginning of 2006. According to the new plans the terminal work is to start in July 2007, which seems to leave plenty of time to review the terminal options and to find the most favourable location. In reality, the Nakhodka option needs a completely new feasibility study, which then needs to be circulated in the government for approving. It is hinted, that this work might delay the whole ESPO project. Transneft admits that the decision making might take longer than they originally expected but still declares that the first leg of the ESPO pipeline would be commissioned on schedule, in the first half of 2008.
The Pacific Pipeline: The Hot Potato (28.06.2005)
The Pacific Pipeline (06.06.2005)
The Eastern Pipeline Project (27.01.2005)
No Ice Troubles in the Gulf of Finland
25.01.2006
The winter has so far been mild favouring oil shipments in the Gulf of Finland. The recent icy temperatures in Eastern and Northern Europe sped up the ice forma tion, but not as dramatically as a cold weather during early winter would have d one.
According to the St. Petersburg Maritime Administration, only vessels of ice class 1D or higher are allowed to enter the ports in Primorsk, Vysotsk and St. Petersburg from January 25th on. However, the officials do not rule out stricter restrictions if the situation becomes worse. The traffic to these ports is assisted by icebreakers Yermak, Kapitan Sorokin and Admiral Makarov from Mid-January onwards. Until last week, vessels have not needed assistance to call the ports. The outlook on the ice conditions should become clearer towards the end of the month.
Figure: Ice formation in the northern Baltic Sea from Jan 16th to Jan 23rd 2006. Source: Finnish Institute for Marine Research, website
The increasing need for ice-classed tankers has had its effect on the vessel charter market. Although the prices have risen, the traders reassure the industry that the availability of ice-class vessels has improved since the beginning of the decade, and no serious loading delays are to be expected - at least not in the Baltic.
Winter conditions have worsened in other parts of Russia as well. Transneft is likely to channel oil to Primorsk instead of Novorossiysk and other Black Sea ports, due to the recent heavy winter storms. Loadings have been delayed already in December and January, and now, as the temperatures begin to drop in the south as well, freezing might cause additional problems.
Russia Soon Self-sufficient in the Production of Oil and Gas Pipelines
12.09.2005
Russia will soon be self-sufficient in the production of large, 1,020-1,420 mm diameter oil and gas transportation pipes. Developing their own pipe manufacturing is important for Russia, because it is ready to implement large oil and gas infrastructure projects, which will increase oil and gas exports. The needs of the growing eastern giants India and China have heated up the steel markets and the prices have gone up sky-high, causing budget problems in infrastructure projects in other parts of the world.
This year, the growing production of steel has stopped the uncontrollable price growth that begun in early 2004. Still, the price of steel remains record high. During 2005, however, China has become increasingly self-sufficient in meeting the steel needs of its industries. The growth of Chinese steel production is hoped to cool down the steel market. Global production of crude steel in the first 7 months of 2005 was up 6.9% when compared to 2004, sustained by China, where production was increased by 28%. The global crude steel production for 2005 is estimated to reach 1090 million tonnes (1056 mln tonnes in 2004).
The rising steel prices have urged major steel consumers to act and invest in independent projects. Russia, which is planning large infrastructure renovations and new-building projects to meet the export needs of oil and gas industries, has witnessed project budgets to increase due to the rising steel price. The domestic steel industry has had trouble adjusting to changes in the demand of certain types of steel products. In 2004 Russia produced a total of 64.3 mln tonnes of steel, up 2.5% from the previous year. The steel pipeline sector sank 2.3% due to lack of demand of pipeline products, but still there was a demand to import 15-20% more of large-diameter pipelines.
Being forced to import the needed large-diameter pipes all the way from Italy, Japan and Germany, Russian infrastructure projects are vulnerable to raw material price changes. In 2003, Russia imported around 300,000-400,000 tonnes of large-diameter pipes. Last year the volume grew up to 600,000 tonnes and this year it will reach 700,000 tonnes.
Recently, several Russian companies have announced investments to new production facilities to pick up the pace of the changing markets. Gazprom and Severstal, one of Russia's largest steel product manufacturers, agreed on a partnership to launch a new pipeline plant in 2006. The annual capacity will be 450,000 tonnes. The production will be focused on the much-needed large-diameter pipes. The venture is expected to have a strong positive impact on Gazprom's gas pipeline projects.
Others are on the move as well. In April 2005, OMK opened a new plant, which is also focusing on large-diameter pipes. In August 2005, Russia's biggest pipe producer TMK announced investments of $800 mln to be carried out by 2010. Already by 2006 the total volume of large-diameter pipe production is estimated to reach 1.4 mln tonnes per year, which is expected to match the domestic demand.
The Rise and the Fall of the Ust-Luga Terminal Projects
29.08.2005
During the past few years, the need for efficient oil export routes has attracted investments to the shores of the Baltic Sea. Despite the high oil prices and the lack of export corridors, several recently activated export terminal plans have been brought to halt within a few months time. Also Gazprom, who announced a Baltic LNG terminal venture in April, seems to have changed its mind over the summer.
In April 2005 the national gas giant Gazprom and Russia's largest shipping company Sovcomflot formed a joint venture called "Baltic LNG Ltd". According to the project partners, the new company was going to facilitate the construction of a new LNG factory and terminal on the Gulf of Finland.
During the spring the project seemed to be moving ahead fast. The chosen location was soon announced to be Ust-Luga, located southwest from St. Petersburg. The new facility was planned to receive the raw product, natural gas, by a branch connecting the Baltic Sea shore and the planned Baltic gas pipeline.
Proposed terminal locations:
Whirlwinding Gazprom
Two months after Gazprom had made the announcement about locating the plant in Ust-Luga, project partner Sovcomflot said, that the new LNG plant might not be placed there after all. Primorsk, where the infrastructure is more favourable, would get the terminal instead. The aboveground part of the planned Baltic gas pipeline will end in Vyborg, close to Primorsk, saving costs in the construction of a branch line.
After these changes, it didn't take long before the news of possible abandonment of the whole venture surfaced. Gazprom complained "unique technical difficulties" in the Gulf of Finland, namely ice. For Gazprom the factor dominating decision making seems to be the Shtokman gas field project, which when implemented, will consume every available ruble. Many new projects dwell inside the gas giant, but for Gazprom it is important to send the correct sign: Russian LNG is on its way.
The summer depression
Gazprom was not the only one interested in the currently underdeveloped Luga Bay area. In total 6-7 companies, including TNK-BP, North-Western Alliance and the German Oiltanking, have announced their plans to launch oil and coal shipping terminal projects in the area. Had all of the oil and gas companies' plans been realised, the Gulf of Finland would have become one of the world's busiest oil and gas export highways with double traffic volumes compared to the current level.
Though the oil export business was and is burning hot, the investment atmosphere changed over the summer. The export duties, transportation tariffs and other fees climbed hand in hand with the oil price. The gradual equalisation of the railway transport tariffs for shipments to Russian and foreign ports took another step on August 1st. The immediate effect of the hike on August 1st was $1-3/ton. On the same day, the crude oil export tax reached a new record level of $140/ton. Transneft's decision to finance the Eastern Siberia - Pacific Ocean oil pipeline partly by raising the transport tariffs by 8% was also felt among the oil exporters.
The deteorating investment atmosphere put the oil companies on their guard. Fearing that the export revenues would no longer support the expansion of the export capacity, many of the companies active in Ust-Luga started to lose their interest. Finally, the Ust-Luga oil terminal plans were called off one at a time. In late August the Ministry of Economical Development and Trade reduced the crude production and export forecasts for 2005, blaming the unexpected delays in export infrastructure development and the reduced growth in explored reserves. Obviously, both these derive from the same origin: lack of investment.
The Eastern Siberia - Pacific Ocean pipeline project indeed seems to dramatically affect the whole industry at all levels. The big question is: will there be enough oil to support any other new major export route?
NOVATEK Challenging Gazprom's Hegemony in the NGL Markets
08.07.2005
Russia's largest independent gas producer and the second-largest natural gas producer Novatek announced in June that it had started condensate shipments through it's new terminal by the White Sea after opening a condensate processing plant in Western Siberia. The investments bring long-awaited alleviation to the acute problems related to reserve depletion and export transportation of the products.
New plant, new terminal
The new Purovsky processing plant gives the producers the possibility to increase the processing of the deep condensate-rich gas reserves in the Yamalo-Nenetsk gas fields. In the initial stage the plant will process 2 mln tons of unstable condensate, producing 1.6 mln tons of high-quality stable condensate and 0.4 mln tons of LPG (liquefied petroleum gas). In 2004, Russian companies together produced 16.6 mln tons of gas condensate. Novatek's share in the production was roughly 2 mln tons.
The new plant receives the raw material by a condensate pipeline. The end product, stable condensate, travels in railcars to the newly opened and expanded Vitino shipping terminal by the White Sea. The terminal expansion project utilized parts of the existing crude terminal facilities, which were modernized to meet the needs of the gas product. The expansion features new storage facilities and loading capacity, new off-loading site and installation of new equipment. After the modernisation works the terminal is able to receive tankers of 60.000 dwt in size.
Investing in independency
Until now, Novatek along with other independent gas producers, has been depending on the processing capacity and the transport facilities of gas giant Gazprom, who has not been eager to support the production growth of its rivals. In the absence of a commercially feasible export route, the valuable condensate has been mixed with crude oil and transported in oil pipelines to the markets.
The new processing facility and the shipping terminal bring independency for Novatek and give hope for other condensate producers as well, as it will make railway transport feasible again. In the beginning of 2006 Novatek plans to start the construction works of the second phase of the Purovsky plant, adding 3 mln tons to the capacity of the plant. After the expansion is commissioned, the plant will accept condensate from other producers as well.
Trial shipments from the Vitino terminal have also been started. Prospective customers, including the American Koch and Shell, have received samples of the product. Novatek is also in talks with several European companies, including BP, Fortum, Total and BASF and seeks long-term supply contracts with the buyers. Novatek wants to secure 30-40% of the exports with long-term contracts and leave the rest to be sold on spot markets.
Novatek in the spotlight
In September 2004 the French oil and gas giant Total announced it had negotiated a deal with Novatek to buy 25.1% of Novatek's shares. The deal was stuck at the Russian Anti-Monopoly service and Total, who was congratulated for excellent tactics to step in the Russian gas market, seems to have lost the game after all. Novatek's shareholders announced in early June that a stock market flotation would be carried out, widening the ownership base. Total would either have to pay more or settle for a smaller share. The chain of events may be the indirect consequence of the Russian government's policy to ensure that the country's strategic industries stay in domestic hands.
The Total-deal gained Novatek a lot of positive publicity, which has also brought powerful alliances. Gazprom, who has also tried actively to secure its influence on the tiny rival, announced a partnership with Novatek. The agreement relates to common interests of the parties in such areas as transportation, processing and sale of natural gas and gas-derived chemical industry products. Rosneft and Novatek have lately signed a deal regarding co-operation in gas and condensate transport and field development. In addition Novatek sold Rosneft it's shares of the Selkupneftegaz Company, which develops prospective gas fields in the Yamalo-Nenetsk area.
With powerful alliances and strategic moves to develop the gas processing chain, Novatek will soon challenge the giant Gazprom in the European condensate market. Currently the European market is dominated by Algerian condensate, which is sold 20-30% cheaper than oil in the Mediterranean area. A Novatek official has commented, that the company would not sell its product cheaper than the Algerian condensate.
Novatek facts:
- 4.1 billion oil equivalent barrels of proved gas reserves (comparison: Gazprom: 2011 billion oe)
- In 2004, the production of natural gas was 16.2 bln m3 (Gazprom 545 bln m3) and liquid hydrocarbons 3 mln tons.
- The company's upstream activities are concentrated in the Yamal-Nenets Region, which is the world's largest natural gas producing area and accounts for one third of the world's gas production.
- Novatek is a private company, owned by Leonid Mikhelson (35.5%, $1.7 bln), 13 other top managers (24.5%). State Duma Deputy Leonid Simanovsky (6%). Ownership of the remaining percentage was not yet revealed.
Indiga on a Break
29.06.2005
Transneft has suspended preparations for a feasibility study regarding the construction of the Northern pipeline from Kharyaga to Indiga. The work has been frozen four weeks after Transneft announced it would allocate $30.4 mln for the preparation of the investment study. Transneft explained, that the suspension was due to oil companies' lack of interest in the project, namely their disinclination to commit to oil supply guarantees to the pipeline, 24 mln tons in capacity.
LUKoil President Leonid Fedun said, that the company might be ready to make commitments after Transneft prepared a business plan regarding the pipeline. Transneft reminded that the pipeline capacity would depend on the oil companies transport needs, and a business study could not be prepared without this information. The project cost, $2.19 bln, which Transneft's pre-feasibility study envisaged, was in LUKoil's opinion too high.
Usa-Ukhta pipeline expanded
The whole Northern Russian oil production is currently constrained by insufficient transportation facilities. Especially the Usa-Ukhta pipeline section, with a capacity of only 16 mln tons annually, limits the development of the Timan-Pechora oil fields. The officials of Nenets Autonomous Area have reported, that the capacity of the regional pipeline system, 17.5 mln tons, will be reached in 3 years. After that, the growing oil industry would suffer from the limitations.
Transneft promised oil companies that the Usa-Ukhta section would be expanded to 23 mln tons. Since then, the Finnish oil company Neste Oil among others has been informed that the expansion is not in the investment list for this year. The companies, however, have agreed to pay an investment tariff of $2.70/100km since May 2005. Transneft estimates, that the section expansion could be ready next year.
The expansion of Usa-Ukhta section is merely a band-aid in a situation, where the capacity deficiency is in reality much greater. LUKoil, who has great plans to build up the production in the area, has a plan B in store. It now seems that LUKoil will finally go ahead with its plans to construct a 25-mln-ton-capacity export terminal in Varandey by the Barents Sea, east of Indiga.
LUKoil putting its money on Varandey
Varandey currently handles 300,000-400,000 t/yr of oil, produced in Timan-Pechora. The oil is taken by 20,000 dwt ice-class tankers to floating storage facilities near Murmansk. From there large crude carriers ship the oil to USA and Europe. LUKoil is, however, somewhat dependent on the storage capacities, because there are other producers that use them as well. Rosneft, that has chartered the Belokamenka through its shipping subsidiary Rosnefteflot, has a priority to the facility.
In the future, LUKoil's plans are much bigger. LUKoil subsidiary Naryanmarneftegas (soon to be RUSCO, joint venture with Conoco-Phillips) and Northern Shipping Company met in Naryan-Mar, Nenets AO to discuss the construction of new terminal facilities in Varandey.
The Northern Shipping Company will handle the shipping of the construction equipment and terminal parts, in total 150,000 tons of material. The company will need a number of new mooring points since the coast is currently unequipped to host cargo vessels. LUKoil now regards Varandey the key element in its strategy in the North.
See also: Joint Efforts to Develop Varandey Export Terminal (9.4.2005)
The Pacific Pipeline: The Hot Potato
28.06.2005
Criminal investigation starting
Since allegations about illegal tree cuttings surfaced, Transneft has been full of explanations and excuses. Rosprirodnadzor announced that a criminal lawsuit would be filed against Transneft and the subcontractor with the state prosecutors office within a few days time. Transneft has admitted that route changes have in fact occurred. Even President Vainshtok aknowledges, that the pipeline route has been taken too close to the lake to be considered environmentally safe.
Transneft has given two explanations for the illegal tree cuttings. The Northern route option, approved by the state, features mountainous streches and a more economical solution is to take the pipeline closer to the lake. Another explanation that was heard was that the pipeline was never intended to pass through the area, which is now under investigation. The studies are only done to map the area, and to do this the workers had to cut down "a tree or two". Transneft emphasizes, that they do not have any knowledge of any violations and if such did occur, Transneft is not responsible for them. It however should not be forgotten, that the terrain investigation works were ordered by Transneft, and no other. The Ministry of Natural Resources has declared that the subcontractor will be fined for the violations.
It's the money that motivates
As always, money is a major player in the game. Transneft is seeking economical benefit from building the pipeline along the existing infrastructure, especially the Baikal-Amur railway line. "Look at the northernmost route option, there's nothing there at all." Transneft Vice President Sergei Grigoriev complains.
Straightening the route from what was approved by the government, would save millions of dollars in construction costs. Even though the frustrated pipeline giant declares that the environmental concerns are brought up to derail the project, the deputy head of Rosprirodnadzor Oleg Mitvol assures that the agency is in favor of the project. "But it has to be done in accordance with the law." he said.
Transneft declares that the environmental issues are an excuse of various parties to get hold of the money involved in the project. The company hints that heavy economical motivations have surfaced in the minds of the shareholders as well. There are some in the Kremlin, that want to pipe the loans needed through the state-owned Vnesheconombank, instead of letting Transneft take care of them. The local officials, who want to place the terminal in Nakhodka area which is under their control, have spoken about the environmental issues of Perevoznaya Bay. The regional authorities call for investments in the Eastern Siberia to tap the oil reserves there and to create jobs for the local people.
Unfortunate attitudes
Since the environmentalists' protests began, Transneft has been eager to defend its environmental policies. Transneft stresses that whatever is done, is done honoring the Russian law. Transneft's trust in its environmental solutions is so strong, that the company feels that it will not matter where the pipeline is laid. "By the way, the waters around the Primorsk terminal by the Baltic Sea became cleaner after the oil terminal started operations there." Transneft Vice President Sergei Grigoriev praised enthusiastically. As a result, the maps distributed at a project presentation on June 16th show that the pipeline will now pass right on the shore of the Baikal. Transneft sees no risk in that.
Unfortunately the project, that could have been an environmental pioneer, seems to be sagging under the economical pressures. The environmental experts fear that Transneft is belittling their concerns and trivializing the measures needed to protect the fragile nature. Transneft's President Vainshtok's personal attitude towards the pleas to take the environmental impact assessment seriously was revealed in recent press meeting: "you need not worry, we will interview every single leopard, and we will obey the law".
The experts now wait eagerly for the publication of the project feasibility study, which is due this summer or before year-end the latest. Transneft admits, that the incident will most probably delay the ESPO project considerably and the first leg could not be commissioned in 2008.
The Pacific Pipeline
06.06.2005
The need for a pipeline eastwards was initially reasoned by Yukos. The pipeline was to be built from Angarsk to the Chinese town of Daqing or Chita. In 2001 Transneft took over and initiated a route from Angarsk to Nakhodka, bypassing Lake Baikal from its south side. Environmentalists soon condemned the route, because the pipeline was to be placed very close to the shoreline.
The southern route had to be abandoned. Transneft came up with a new proposition according to which the route would start from Taishet and pass Lake Baikal from its northern side, continue straight eastwards to Skovorodino, situated halfway to Nakhodka. The Yakutian government has lobbied an optional route that turns north at Poima and reaches Yurubcheno-Tokhomskaya zone oil fields. Then it turns east to south-Yakutia and finally southwards again reaching Skovorodino.
On April 24, the Industry and Energy Ministry signed a document featuring the stages of the pipeline construction. The document named, as was expected, Transneft's northern route as the final one. In the first phase Transneft will build a 30-mln-ton pipeline to Skovorodino, from where the oil will continue on to the Pacific coast or to China or both.
Environmentalists worried about Lake Baikal
Transneft's proposition is shorter, more economical and easier to build. On the other hand the proposed route is being placed to run straight through the core catchment of Lake Baikal, near the northern shoreline, even closer than the original southern route would have gone. The Yakutian route on the other hand had many difficult stretches with rivers and mountain areas, but it would have taken the pipeline hundreds of kilometres north from the lake that has been named a UNESCO World Heritage site.
Transneft was given approval to conduct field studies along the pipeline route. Soon after the works were started, the officials of the Federal Service of Supervision of Nature Use (Rosprinadzor, under the Ministry of Natural Resources) found out that Transneft was conducting field studies only 12 km from the Baikal shoreline. The site was much closer to the lake than what environmental experts had defined in the license. The workers reported, that Transneft has modified the plans repeatedly and each time the route was taken closer to the lake. The Ministry of Natural Resources investigates the situation. If true, Transneft might lose its license. The company has denied all accusations, but has stopped studies in the area.
Transneft intends to finish the feasibility study phase for the route already in June 2005, organise all public hearings in July and commission the Taishet-Skovorodino -section by 2008. The Russian government will either have to disregard the pleas of the public or move the route further north.
Amur Bay threatened
Another environmental hotspot along the route is the terminal location. Currently the balance is leaning towards Perevoznaya by the Amur Bay. Environmentalists have argued that choosing Perevoznaya will damage the nature more than any other location in the whole Russian stretch of the Pacific Ocean shore. Diverse aquatic and on-land populations of endangered species and habitats flourish there. The Amur Bay area speciality is the Amur leopard, an extremely rare big cat with only 30-40 individuals left in the wild.
The livelihoods of the local people also depend on the quality of the environment. The waters uphold strong fish stocks and the beaches along the coast have a high recreational value, thus attracting tourism.
The navigational conditions in the area do not favour oil shipments. The waters are very shallow, and the terminal will have to be taken about 2 km offshore. The shallow water also causes a risk of grounding. The area also suffers from frequent storm winds, fogs and heavy currents, inhibiting cargo loading and increasing the probability of an accident. Because of the currents, a possible oil spill would also spread very fast. To reach Perevoznaya, one has to weave between a string of islands. Most importantly: better and environmentally less harmful locations are available, like Nakhodka, which is also easier to navigate.
The politics
One has to ask, why choose Perevoznaya in the first place? The local political powers have lobbied Perevoznaya very strongly. According to the former Vladivostok mayor, high officials of Primorye local administration have bought land at the Perevoznaya before they started promoting the site as a terminal location. Journalists have reported, that they have been instructed not to give any bad press to the project. Transneft has also been lobbying intensively, recently by inviting the regional Duma to visit the Primorsk oil terminal.
The local administrations are demanding for public hearings, which are a part of the environmental impact assessment work. The Russian Academy of Sciences has stated that building the terminal at Perevoznaya Bay poses an environmental threat. Also the Deputy Minister of the Ministry of Natural Resources Mr Valentin Stepankov, who is responsible for the EIA process, is accounted to favour Nakhodka. The foreign investors, who have been linked to the project, publicly support social and environmental values in projects like these. It remains to be seen, if their voices are heard in the remaining design work.
Who will have the oil?
The pipeline was initially a China-export project, but today also India, Japan and even the U.S. are possible clients. The countries have been offering Russia tied loans in exchange for oil.
Although China has been a strong contender in the game and Russia wants to improve relations between the two countries, Russia has not given any commitments. Japan has offered loans, but wants a guaranteed share of the product, which does not suit Russia. Also the Russia-China-India pipeline has been brought up. India supports the idea, but Transneft won't comment.
It has also been suggested, that the development of the Eastern Siberian oil fields will be tightly connected to the development of the export outlet. According to a Russian energy official source, the pipeline construction might stop at Skovorodino, if the reserves are not rich enough.
Sovcomflot Sailing Before the Wind
26.05.2005
Sovcomflot, Russia's largest shipping company is enjoying strong tailwinds of the growing oil industry. The company is ongoing a fleet renewal program and currently the tanker fleet of 35 vessels is one of the youngest in the world. The growing demands from the energy sector are encouraging Sovcomflot to expand even further: at the moment the company has as many as 17 new vessels under construction.
Sovcomflot will also be the first one to start Trans-Atlantic oil shipping from Primorsk with the new VLCC (very large crude carrier, 200,000-250,000 dwt) tanker type, the 'Baltic Max'. Sovcomflot's tankers are currently involved in transportation tasks in all major sea routes including the Baltic Sea, the Caspian, the Far East and the Barents Sea.
Sovcomflot Board of Directors outlined the company's main directions for 2005-2009 in January. The state-owned company is currently in a good financial shape. In 2004 the operational profit increased by 18.6% to $138 mln. The BoD recommended that the company should develop as a major national marine energy resources carrier, focusing on the Russian energy companies and transportation in ice conditions. The company's vessel investments will focus on Aframax and Suezmax type oil carriers as well as LNG (liquefied natural gas) and LPG (liquefied petroleum gas) carriers. The BoD also recommended the company to support the national LNG industry by developing the LNG transportation hi-tech.
Fleet renewal program
Following its fleet renewal policy for 2001-2008, Sovcomflot has systematically sold several of its eldest vessels and is focused on new-building of large oil and gas carriers. The new-building program constitutes of 43 vessels, 20 of them being Aframax and Suezmax type crude carriers, 17 product or chemical tankers and 6 gas carriers. Average age of the fleet is currently 4.5 years, compared to 9.6 years worldwide.
| Sovcomflot's construction program for 2005-08 | |||
| Vessel type | Shipyard | Ice-class | Delivery |
| Suezmax 162,000 dwt | Daewoo, KOR | 1A | Oct 2006 |
| Suezmax 162,000 dwt | Daewoo, KOR | 1A | Dec 2007 |
| Aframax 100,600 dwt | Huyndai HI, KOR | 1A | Dec 2005 |
| Aframax 100,600 dwt | Huyndai HI, KOR | 1A | Dec 2005 |
| Product chem. carrier 47,400 dwt | Admiralty Shipyard, RUS | 1A | Nov 2005 |
| Product chem. carrier 47,400 dwt | Admiralty Shipyard, RUS | 1A | May 2006 |
| Product chem. carrier 47,400 dwt | Admiralty Shipyard, RUS | 1A | Dec 2006 |
| Product chem. carrier 47,400 dwt | Admiralty Shipyard, RUS | 1A | ? |
| Product chem. carrier 47,400 dwt | Admiralty Shipyard, RUS | 1A | ? |
| Product oil carrier 47,400 dwt | STX Shipbuilding, KOR | 1A | Oct 2006 |
| Product oil carrier 47,400 dwt | STX Shipbuilding, KOR | 1A | Oct 2007 |
| Product oil carrier 47,400 dwt | STX Shipbuilding, KOR | 1A | Dec 2007 |
| Product oil carrier 47,400 dwt | STX Shipbuilding, KOR | 1A | Dec 2007 |
| LPG carrier, 35,000 m3 | Huyndai HI, KOR | Dec 2006 | |
| LPG carrier, 35,000 m3 | Huyndai HI, KOR | Jan 2007 | |
| LNG carrier, 145,700 m3 | Daewoo, KOR | Dec 2007 | |
| LNG carrier, 145,700 m3 | Daewoo, KOR | Mar 2008 | |
| LNG carrier, 147,200 m3 | Mitsubishi Heavy Industries, JAP | Q4/2007 | |
| LNG carrier, 147,200 m3 | Mitsubishi Heavy Industries, JAP | Q4/2007 | |
| Total 17 vessels | |||
So far the company has commissioned over 20 new vessels, mostly crude carriers. In February 2005, Huyndai delivered two Suezmax (159,000 dwt) tankers and now has 4 additional deals in its order book: two for Aframax tankers and two for 35,000 m3 LPG carriers. Admiralty Shipyards has recently delivered the fourth of six 47,400 dwt product tankers, and a new contract extends the product carrier series to 9 vessels. Sovcomflot has lately also placed an order for four 47,000 dwt 1A-iceclass tankers to be built at the Korean STX shipyard.
In addition to these, Sovcomflot recently signed a Memorandum of Intent of the construction of new multipurpose dry-cargo vessels and 10,000 m3 LPG carriers at the Severnaya Shipyard. By 2009 the total deadweight of Sovcomflot's vessels will increase by 1.5 mln tons and reach 4.8 mln tons.
Baltic Max - The new magnitude of Baltic shipping
The fleet expansion is likely to continue far beyond year 2008-09, as the Russian oil shipping by the Baltic Sea is estimated to grow even up to 180 mln tons annually. During spring 2005 the Swedish shipping company Stena and Sovcomflot announced a partnership in developing a new tanker type for Baltic operations, called the 'Baltic Max' or the 'B-Max'. The VLCC 1A ice-class tanker will introduce a smaller draught (15m) suitable for Baltic Sea conditions.
The vessel will be able to pass through the Danish straits fully loaded allowing straight Trans-Atlantic shipments from Primorsk all-year-round. The possibilities of the Primorsk terminal can now be seen from a completely different angle, as the Baltic Sea crude transport is currently limited to Aframaz size vessels loaded to a maximum of 110,000 dwt.
Although it is not possible to place construction orders before 2008, the Baltic Max concept will be developed further already this year. Sovcomflot and Stena plan to construct 10 vessels of the new type, possibly at Japanese shipyards.
Thus, the limitation of vessel size seems to have been solved for the Baltic Sea. However, even if the shallow Danish straits are no longer an issue, the breadth of the new vessel type will soon become one. Lowering the tanker draft will make demands for widening the ship correspondingly. It remains to be seen how the Russian icebreaking fleet at the Baltic Sea will manage the assistance of a ship of such monstrous size.
Barents Sea shippers look for long-term deals
During the past three years, freight prices for oil have grown considerably. In the North the price hike is caused by the lack of ice-reinforced vessels. Ship-owners now have great possibilities, especially at the short-term charter markets. According to its strategy for 2005-2009, also Sovcomflot will strengthen its presence in the spot charter market. To balance the business, Sovcomflot has actively offered long-term services for the Arctic oil and gas projects.
Currently, Sovcomflot has four 47,000 ton 1A ice-class vessels recently built at Huyndai shipyard time-chartered for shipping between the White Sea ports and Murmansk.
Sovcomflot has been negotiating a time-charter deal with Rosnefteflot, the operator of Prirazlomnoye oil field sea transport. The Prirazlomnoye shipping contracts have been delayed due to the delays in field development. According to the official information, Prirazlomnoye oil field will reach industrial volumes by 2007 and produce an annual 6.5 mln tons of sulphur-rich crude by 2011.
LNG and LPG - specialized know-how needed
In addition to the growing Baltic and Barents Sea crude shipping market, the biggest new challenge for Sovcomflot will be the LNG shipping business, with all its complications. The current Russian LNG programs all feature difficult ice conditions. LNG cannot be stored, which makes considerable schedule demands for shipping in particular.
Sakhalin Energy awarded Sovcomflot a long-term time-charter deal for two LNG carriers. The vessels are constructed at the Mitsubishi shipyard and will start operations at the end of 2007. The 147,200 m3 gas carriers will transport the product of Sakhalin Energy's LNG plant at Prigorodnoye in ice-infested waters.
Sovcomflot lately announced that it will join Gazprom's $4 bln Baltic LNG venture with a 20% stake. Gazprom is planning to construct an LNG plant in Ust-Luga by the Gulf of Finland as a part of the Baltic gas pipeline project.
The company's technical expansion possibilities seem endless, but it has other development needs as well. Arctic operations call for specially trained crew. Sovcomflot has taken notice of the need of training for navigation in ice and for gas transportation. In co-operation with the Swedish shipping company Stena, Sovcomflot has started a sponsor program to support the Admiral Makarov State Maritime Academy in St. Petersburg. The Academy will invest funds to create an ice-training centre and to develop the existing training programs. In return, Sovcomflot will be able to secure a long-term supply of qualified mariners.
Oil Shipping is Big Business
16.05.2005
Freight deliveries have tripled during the past few years in Russia. Last year, more than $5 billion was spent to ship Russian oil to foreign markets. Still, Russian oil companies themselves are not eager to engage in the shipping business. A new law has been proposed recently to create a Russian International ship register. This might change the situation. The oil companies have to be quick in their decisions - the sell-off of the Russian trade fleet might begin this year.
Oil companies' shipping policies
Depending on their sales strategy, oil companies choose between owning a fleet and co-operating with shipping companies. During the past three years freight rates have tripled, making shipping an important economical factor. According to Intertanko, an international association of independent shippers, freight of a suezmax tanker from West Africa to the US has climbed from $16000 a day in 2002 to $62000 in 2004. Companies have been looking to buy or charter vessels on a long-term contract to protect themselves against the sharp changes in the freight rates. Those who have been able to ship their own products have gained an advantage.
ExxonMobil, Royal Dutch/Shell, BP and ChevronTexaco are examples of international oil firms, which have their own tanker fleets. Russian oil companies, however, do not see shipping as a business interest.
Gazprom and Rosneft and their shipping subsidiaries Gazflot and Rosnefteflot (former FEMCO) carry only geological and drilling equipment onboard their vessels. LUKoil bought 11 river-sea tankers and 10 ice-reinforced tankers in 1999. In 2004, LUKoil sold the river-sea tankers and has announced recently, that it will not expand its fleet, even if vessels become available through privatization. In 2004 LUKoil also converted from CIF sales (cost, insurance & freight, cost of transport is included in the oil price) to FOB-based (free on board, the client is responsible for the transport) oil deals. LUKoil sees that today, owning a fleet is not necessary, because tanker availability is improving.
The fear factor
By engaging in shipping, an oil company takes on a considerable image risk. The transport of hydrocarbons is the most risky part in the production chain. This is why the oil companies subject the shipping operations to very high safety and ecological regulations - in addition to the requirements of national and international supervisory bodies.
Intertanko reports that during 2003-2005 safety of oil transport has been improving. Reasons to this are various. One of them is that the shipping industry is moving away from single-hull tankers. Since April the 5th, the new IMO requirements ban the use of single-hull tankers older than 23 years and of size 20.000 dwt and larger. The rest of them will be eliminated in 2010. All single-hull tankers larger than 5000 dwt are banned from transporting heavy fuels. Single-hull vessels also are becoming unprofitable as their insurance premiums have risen considerably.
Russian ships flying foreign flags
According to RF Ministry of Transport, the total volume of shipping from Russia for foreign trade has risen from 200 million tons in 1998 to 450 million tons in 2004. The value of shipping has risen from $4 billion to 7.5 billion, correspondigly. It is estimated that the share of oil shipping is $5 billion. The Ministry reports, that the Russian shipping companies' share in 2004 was only $300 million: 5% of the total volume of freight.
Since Russian oil companies are not interested in the shipping business, oil is being carried by Russian and foreign shipping companies. Russian shipping companies typically register their vessels under flags of convenience. According to estimates, transporting Russian oil constitutes 20-50% of their activities.
The lack of interest or experience, however, does not explain the failure in expanding the Russian share of the market. The reasons are elsewhere. The existing Russian tax legislation makes investing in tankers very unprofitable. The Ministry of Transport reports that of the 211 ships constructed in Russia since 1992, more than 90% sail under a foreign flag. If a foreign ship is registered in Russia, the owner pays tax and duties, which sum up to 24% of the ships value. For the oil companies, this price is too high. At the same time, an oil company of a good reputation cannot allow the shipping subsidiary to register vessels offshore.
These types of problems have risen in other countries too. As a result Norway, the UK, Denmark, Turkey, Brazil and Greece have introduced an international (second) ship registry, which allows tax benefits to a certain number of vessels. In those countries, almost all ships fly the national flag.
Russia establishes new shipping register
After five years of preparation, the Russian Government approved a law proposal about a new international ship registry on April 7th. The new law will be introduced in State Duma in the near future and it is believed to pass without difficulty. Minister of Transport Igor Levitin said that the Russian fleet might expand by 750 vessels, which could carry 183 million tons of cargo per year. Ship-owners could get their hands on a business worth $2.3 billion.
At the moment, almost all tankers owned by Russian shipping companies fly a flag of convenience. For instance, all of Sovcomflot's 35 tankers and 92% of Novoship's tonnage are registered offshore. Still, not all vessels can return, because many of them were built with credits from Western banks. It will, however, be more profitable to build a new fleet in Russia.
The oil companies also have the possibility to reconsider their shipping policy. Decisions should be made quickly. The privatization of state's share in Volgotanker (20%) is to start in 2005 and the sale of the rest is being discussed. The privatization of Sovcomflot and Novoship is also about to begin. All three are in good financial shape. Industrial Investors Group, which controls the Far East Shipping Company FESCO, has already confirmed interest to acquire other companies and expand FESCO's fleet.
Arctic Shipping Conference in Helsinki
16.05.2005
The first international Arctic Shipping Conference was held in Helsinki, 27-28 April 2005. There has been a sharp increase in arctic sea transport, particularly after the exploitation of oil and gas deposits in Northern Russia and along its Arctic coast started. The shortage of oil tankers suitable for arctic conditions has been remedied, but a new challenge is how to ensure a sufficient number of icebreakers. Moreover, essential for the safety of seaborne transport is upgrading the skills of the crew.
The Arctic Shipping Conference, which was organised by Lloyd's List events and took place at Hilton Helsinki Kalastajatorppa, gathered 150 experts from different parts of the world - the furthest away delegates came from Argentina, Japan and Korea - to discuss the future challenges and developments of arctic shipping. The Ministry of Trade and Industry of Finland was the official supporter of the conference. The City of Helsinki arranged an evening reception at the City Hall. The conference participants also had an opportunity to visit Aker Arctic Technology Centre and the new port of Helsinki in Vuosaari.
Opening address held by Minister Mauri Pekkarinen
Minister of Trade and Industry Mauri Pekkarinen stated in his opening address that research and product development plays a key role in developing the arctic industry. One quarter of the known world oil and gas reserves are in the arctic regions, and exploitation of these to meet the growing energy demand due to rising consumption requires plenty of new innovative technology. Even if Finland does not actually belong to the arctic zone, the Government's inputs to support to the arctic marine research and product development have notably increased during the past ten years. When exploiting the natural resources in the arctic regions and developing technology, it is especially important that matters related to safety and the environment are considered. Minister Pekkarinen also highlighted the significance of international cooperation and common understanding.
Finland has exclusive expertise in and experience of building vessels and icebreakers suitable for arctic conditions. Minister Pekkarinen reminded that successful execution of the major new vessel orders that Finnish shipyards received recently requires strong contribution from the State. After the termination of the EU's temporary aid scheme for shipbuilding as of 1 April 2005, governmental support to the shipbuilding industry will take the form of Finnvera's guarantee and funding activities. Finland is also considering introduction of an innovation aid scheme if the experiences gained by the EU of the functioning of such a scheme prove to be positive.
Increase in arctic oil and gas transports
The increase in arctic maritime transport and related development needs are mainly due to the start of the exploitation of the oil and gas reserves in Northern Russia and its arctic coastal region. In practice, the Northern Sea Route constitutes the only possible transportation route for oil and gas. Oil transports from the arctic ports of North East Russia have begun in 2000 and amount to nearly 10 million tons a year. The volume of these transports is expected to grow to 65-100 million tons over the coming ten years.
The gas reserves in the Arctic constitute a future energy source that can be economically and technically exploited thanks to the development of gas liquefying technologies. In 1975, the known world gas reserves amounted to approximately 64 trillion cubic metres. In 2004 - after 30 years of exploitation - the remaining reserves amounted to 180 trillion cubic metres. Approximately one quarter of these reserves is in the arctic regions. The potential reserves are, however, estimated to be multiple, but they are not known yet because of relatively little exploration.
Liquefied Natural Gas (LNG) transports are expected to increase from the preset 170 billion cubic metres to 370 billion cubic metres in 2010, and to 550 billion cubic metres in 2020. The increase is mainly due to the multiplied demand of LNG in the USA and Asia. It is estimated that in 2020 about 20 million tons of LNG will be transported from the arctic gas fields of Russia to the USA. Transportation of such a large volume of gas, for instance from the Yamal Peninsula, requires about twenty new LNG tankers with icebreaking capacities.
Technical and economic challenges
From the economy point of view the most important aspect of oil and gas transportation is coordination of the requirements for speedy and safe transports. Speed and regularity are of particularly great importance for LNG transports. The speed of a vessel in a convoy led by an icebreaker is only 5-8 kn, while the objective of LNG transports is a speed of 20 kn. In addition to low speed, time is often being wasted also on waiting for icebreaker assistance. A new type of vessel (double-acting tanker DAT, e.g. Mastera and Tempera owned by Neste Shipping) capable of moving independently through ice that has been developed by Aker Finnyards gave rise to a lively discussion among the experts; many views on the functioning of the DAT concept were aired during the conference.
A study presented by a Norwegian expert proves that the costs of transport using DAT are up to 60% lower compared to traditional ice-strengthened tankers. The majority of experts considered thus that the DAT concept provides by far the best solution for arctic transports. In extreme conditions, also this vessel is forced to call for icebreaker assistance.
Mr. Erkki Kotiranta, Vice President of Neste Shipping, stated that the company estimates surplus to be created on the Baltic Sea market for ice-strengthened tankers after 2006. The oil and gas projects of the Russian Arctic, on the contrary, risk to be delayed because of the shortage of tankers and icebreakers. This problem is not deemed to be alleviated even by the predicted climate change.
Oil production in the Prirazlomnoye oilfield in the Pechora Sea was scheduled to start in 2006. Rosneft's shipping company Rosnefteflot (previous FEMCO) has placed an order for two ice-strengthened DATs for oil transport purposes. These vessels will be designed by Finnish Aker Arctic Technology and they will be built in St. Petersburg, but they will not be completed until 2007. The shortage of oil tankers hampers also the oil transports from the Varandei oil terminal. A joint venture set up by LUKoil and ConocoPhillips plans to transport the oil produced in the northern oilfields of the Nenets Okrug to the world market via Varandei.
Mr. Sergei Terekhin, Vice President of the largest Russian shipping company Sovkomflot, announced during the conference that Sovkomflot and the Japanese company Nippon Yusen KK intend to jointly provide LNG transport services to exploiters of the gas fields of the Russian North. Sovkomflot and NYK have already placed an order for two ice-strengthened tankers to be used in LNG transports from Sakhalin. Mr. Terekhin claims that vessels of the same type are suited, for instance, for the transportation of gas from the Shtokman gas field.
Ice classification of vessels operating in arctic waters
The "jungle" of rules governing arctic maritime transport and vessels was discussed by a panel during the second day of the conference. The work for harmonization of ice classification rules done by the International Association of Classification Societies (IACS) has now proceeded to the consultation phase.
The harmonised rules proposed include now, for the first time, an overview of the requirements for the hull and functioning of the ship. But this work has not been completed yet, and the representatives of Aker Finnyards, among others, pointed out some insufficiencies in the rules, especially those concerning the capacity of a ship.
Both shipping companies and classification societies expressed opinions in favour of increased harmonisation, because constantly changing rules cause them quite many problems at the moment. Experts pointed out that when drafting new rules, the objective should be to move away from the very common approach "regulation by disaster".
Safety of seaborne transports and training of crew
Norwegian experts expressed their concern about the increase in oil transports from Russia along the Norwegian cost. The representative of the Finnish Maritime Administration stated that Russian ports located at the Gulf of Finland change their requirements for ice classification by prevailing market situation for tankers. Because there is a shortage of vessels of ice class 1A and 1AS at the moment, Primorsk accepts even vessels of ice class 1C, while Finland at the same time requires ice class 1A. As concerns the Baltic Sea, the rules have been amended resulting in a marked increase in the safety of seaborne oil transports, which also provides a good basis for the development of rules for arctic maritime transports.
The experience gained from the Baltic Sea shows that more than 90% of sea accidents are due to human error. In arctic waters, the risks are even higher depending on the stress on the crew caused by the environment: severe frost, darkness and noise. In the construction and operation of ships, special attention should be paid to alleviating the burden on the crew. Many experts considered that specific requirements should be set out for the training of the crew of ships operating in arctic waters. In addition to ensuring access to safe, ice-strengthened vessels capable of operating independently in arctic waters, access to skilled and experienced staff should also be secured.
A study carried out under the ARCOP project for the development of the Northern Sea Route reveals that there is no institution in the world providing arctic maritime training on regular basis. Finland has the capacity necessary for developing a desired international arctic maritime training programme on the basis of existing systems for maritime safety training.
The results of the international ARCOP project led by Finnish companies and organisations provide quite a lot of new information to be used in solving the most difficult problems and meeting the most urgent development needs. Based on the presentations and the panel discussions held at the conference, the first results of the ARCOP project already seem to have been broadly welcomed by the industry.
Joint Efforts to Develop Varandey Export Terminal
09.04.2005
LUKoil vice president Ravil Maganov and the director-general of Arktikshelfneftegaz Boris Kutyzkin signed a protocol which envisages the two companies' cooperation within development of oil export infrastructure in the North.
The company Arktikshelfneftegaz owns the licenses to hydrocarbon exploration and production at the Medynsko-Varandeiskoe, Pomorskoe and Kolokolmorskoe fields in the Pechora Sea outside the coast of the Nenets Autonomous Okrug. The company presently works with the conceptual development plans for the exploitation of the fields.
LUKoil intends to construct a new ice-resistant oil terminal within the borders of the Medynsko-Varandeiskoe field. LUKoil also plans to develop a marine oil transportation system equivalent to Arktikshelfneftegas's system both in structural and technical parameters.
The public relations department of LUKoil announced, that according to the protocol the companies seek cooperation in the following areas:
- Design and construction of a new oil terminal at Varandey
- Design and construction of sub-sea and on-shore oil pipelines
- Joint use of the marine transportation system
- Development of systems ensuring environmental, technical and production safety
- Development of systems ensuring safety of navigation and marine transport
- Acquiring the needed assisting fleet including icebreakers, tugs, supply vessels and oil spill response facilities
"Both LUKoil and Arktikshelfneftegas have considerable experience in developing oil and gas fields and building transport infrastructure. We consider the co-operation between the two companies very promising", vice president Maganov concluded.
RusEnergy/LUKoil press release
Tambeineftegaz Submits Yamal LNG Project to Government
04.04.2005
Tambeineftegaz, which is developing the Yuzhno-Tembeiskoye deposit in the Yamal-Nenets Autonomous District, has submitted an LNG works construction project in the area of Cape Drovyanoi on the Yamal Peninsula to the Russian Economic Development and Trade Ministry for consideration.
In October 2004, Tambeineftegaz put the finishing touches to its LNG works construction project concept. Under the project, Tambeineftegaz is to build the LNG works by late 2008 or early 2009. The works will have an annual capacity of ten million tonnes of liquefied natural gas (LNG), which is to be exported to United States.
The project is already being co-ordinated with environmental protection services and other companies, such as Gazprom, which may join the project. An integrated company is also to be formed to engage in gas extraction, liquefying and transportation to the US.
According to Tambeineftegaz, the Yuzhno-Tembeiskoye deposit has total reserves of 43 trillion cubic feet of gas and 60 million tonnes of gas condensate.
YAMAL INFORM, March 21, 2005
Barents Pipeline - "To Be or Not to Be?"
11.03.2005
The Timan-Pechora province is situated in the Nenets Autonomous Area and the Republic of Komi, along the western edge of the Ural Mountains. The oil-rich province is estimated to hold at least 5 bln tons of oil (1,5 bln tons recoverable) and 600 bcm of natural gas. Over 170 oil fields have been identified.
Timan-Pechora is situated west of the Ural Mountains
A detailed map of the northern part of Timan-Pechora
The development of the fields has been delayed due to an insufficient transport system. Although the pipelines taking oil out to the markets are filled to capacity, a decision upon a new pipeline has not been made. Even Europe's largest oil-refiner Total, which has invested in the Kharyaga oil field to secure raw-material supplies, is now halting developments in the field because of the uncertainties in transport.
Russian oil companies have actively drawn attention to solving the export problems in Timan-Pechora. The Russian government is now facing pressure also from across the ocean, as American oil companies are planning to invest in Timan-Pechora. Conoco-Phillips, for instance, has set up a joint venture Rusco with Russia's leading oil company LUKoil to develop the Northern Territories of Timan-Pechora province. LUKoil, being responsible for the majority of development in Timan-Pechora, has actively negotiated with Transneft to solve the transportation issues. LUKoil has been backing a so-called Barents Pipeline to solve the export problems.
Barents Pipeline Early Development
Initially, the northern export route to Murmansk by the Barents Sea was introduced by a group of oil companies including LUKoil, TNK-BP and Yukos in 2002. The investment was estimated to be 11-12 bln USD. The proposal was based on the use of the ice-free port of Murmansk, which is able to receive tankers up to 300 000 dwt in size. A pipeline all the way from Surgut in Western Siberia would have relieved the capacity problems in the current east-west main line. It would have also been of a great social and regional importance.
However, in the preliminary study phase it became clear, that the Russian government would not allow private oil pipelines to be built in the country. The companies involved handed the project preparations over to the national pipeline monopoly Transneft. Transneft was disinclined to the task, because the project would possibly threaten the oil supply to other important ventures such as the Pacific Pipeline and the Baltic Pipeline System.
Responding to the pressure from the Russian governments side, Transneft started a series of feasibility studies regarding the Indiga pipeline. Indiga in the Nenets Autonomous Area was soon chosen as a more favourable location for the new export terminal. The new price tag was set at 6 bln USD. Indiga-option was criticized for its harsh ice conditions. In addition, the shallow shores do not allow large crude carriers to visit the port.
Barents Pipeline Project Shrinking
In October 2004 Transneft was still backing an 1800-km pipeline from Surgut to Indiga, that would have carried 50 mln tons of crude annually to an arctic port near Indiga. The Surgut link was buried in February, as Transneft now proposes to start the pipeline from the Kharyaga oil hub. The pipeline was cut to less than one third of its original length, reducing the costs correspondingly. The length of the 50-mln-ton pipeline is to be 500 km and the costs approximately 2.2 bln USD.
From the oil companies' point of view the Barents Pipeline project is changing shape for the worse. Cutting the pipeline to start from Kharyaga means that the new pipeline would only solve the needs of the Timan-Pechora area, but not beyond.
LUKoil president Leonid Fedun said that the oil companies support the general idea of developing the infrastructure, but the question for them is the schedule of the development. Transneft warned that even though the pipeline could be built in 20 months, the project is not likely to be realized during this decade. Transneft's resources will be tied in the Pacific Pipeline development.
Oil Companies Still Interested in Indiga
LUKoil decided to support the latest proposal by Transneft, even though it has announced the expansion of the Varandey terminal to 12 mln tons by year 2007. Varandey is logistically less advantageous than Indiga and it suffers from heavier ice problems. Only ships up to 20000 dwt are able to visit Varandey due to shallow shores, whereas Indiga would be able to receive ships up to 100 000 dwt and bigger. Varandey is located another 400 km east from Indiga, meaning that the transportation distances are multiplied.
The oil companies are not getting what they originally hoped for, but the realization of the Barents Pipeline is still very important, even crucial, in many ways.
From the oil companies' point of view a state-built pipeline would reduce the investment costs and raise the capacity of the export system considerably. The capacity of Varandey terminal is planned at 12 mln tons whereas Indiga terminal could handle 24 mln tons in the first stage. But the companies cannot wait until 2010 to receive an export outlet. Investments have already been made by foreign investors, who are expecting supplies of oil in return.
Even though the existing transport system has proved its inadequacy and the decision on the Barents pipeline seems to be slipping to the uncertain future, the RF Ministry of Natural Resources has announced plans to auction more fields in the northern part of Timan-Pechora in 2005. The auction would surely tempt a wider group of companies, if the export troubles were resolved in time.
The Development of Russian Crude Export by the Baltic Sea 2003-2004
10.02.2005
The Russian crude export has grown strongly for the past few years. In 2002 the total export volume was 151 mln tons and by 2004 it had grown up to 197 mln tons. The growth has forced oil exporters to find new outlets. The current pipeline network is filled to its capacity and Transneft has had difficulties getting government backing for new pipeline projects. Oil exporters have actively looked for new routes. As a result, sea and train transports have increased. Most of the growth in sea transports is a direct result of the Baltic pipeline system and the Primorsk terminal expansions.
For the past ten years Russia has steadily increased oil exports, to Europe in particular. Concurrently, Russia is determined to reduce its dependence on transit routes and closed markets and prefers to transport oil to its own seaports with easy access to various markets.
Many small Baltic ports have enjoyed the growth of export. Most of the Baltic ports were established during the Soviet time and now belong to the new EU member states Estonia, Lithuania and Latvia. Russia's aims to reduce transit transportation and expand the Primorsk terminal are felt in many formerly quite busy small Baltic ports such as Butinge, Ventspils and Tallinn-Muuga. Also the transportation of oil products has decreased there.
Ports in the Barents Sea are also growing. Exports via the ports in the White Sea and the Barents Sea increased by 3 mln tons last year. Oil companies are ready to expand their facilities in the Barents Sea. Considerable growth can be expected if the decisions regarding the Barents pipeline are favourable. Transneft has proposed to the Russian government to construct a new 80-mln-ton pipeline to Indiga.
The Black Sea transports decreased last year by 6.5%. The southern direction suffers from the traffic restrictions in the Bosporus strait.
In 2005 two important decisions regarding crude exports are to be made. The Eastern Pipeline to Nadhodka by the Pacific Ocean is Transneft's priority. Decision on the Indiga pipeline can be expected later. At the end of year 2004 the Russian government made a decision on the further expansion of the Baltic Pipeline System. The expansion is likely to intensify the trend of the centralization of crude export in the Baltic area.
Krasin - The Heroic Icebreaker
08.02.2005
In December, the Russian icebreaker Krasin was sent to assist American supply vessels to the McMurdo Antarctic Research Center. The McMurdo station has risked evacuation due to lack of supplies.
The McMurdo station is the main base of the US National Science Foundation's Antarctic program. It was established in 1956. The station is situated on the Ross Sea coast, on the volcanic Ross Island. It is a permanent research facility and needs regular deliveries of fuel, food and medicines for its 1000 staff members.
This time the deliveries were threatened and the station risked evacuation because one of the two US icebreakers that normally carry out the resupply operations had to be taken in for an overhaul. The USA asked Russian authorities for assistance and the icebreaker Krasin, operated by Far-Eastern Shipping Company FESCO, was sent to the southern seas. From the Russian side the operation is coordinated by Artur Chilingarov, President of the Polar Explorers' Association, State Duma deputy and Hero of the Soviet Union.
Krasin started its journey on December 21st 2004 from Vladivostok. The Russian Krasin and US icebreaker Polar Star were to meet after three weeks of sailing near the Antarctic. The Polar Star suffered propeller damage and a hydrographical icebreaker Nathaniel Palmer was sent instead. The vessels were later joined by the tanker Paul Buck in the Ross Sea.
The convoy entered the Antarctic on January 18th, and on January 24th the icebreaker Krasin started to ice-channel the tanker Paul Buck towards the shore. The shores of the continent of Antarctic are covered by multi-year ice. The length of the fast ice section was 470 nautical miles. The level-ice thickness was in average 1.5 meters in the area but there were hummocks and ice blocks, even icebergs on the way. As the convoy got closer to the shore, the ice-conditions got easier.
The convoy reached the McMurdo station on January 26th. The favourable eastern winds helped Krasin, and the station was reached earlier than estimated. After the tanker Paul Buck finished unloading, Krasin started assisting her back to open waters. On the way to the Ross Sea, the tanker suffered an engine failure and the convoy was stopped for two days. After finally reaching the open waters, Krasin turned back to bring a dry cargo vessel MV American Tern and the hydrographical vessel Nathaniel Palmer to the station.
The US National Science Foundation has sent a letter to the captain of the icebreaker Krasin thanking the crew of Krasin for their work in assisting the McMurdo station. The station can now continue its work and no evacuations are needed. The icebreaker Krasin will return to Vladivostok in April.
The Krasin was built in 1976. The name was taken from a legendary vessel that participated in 1928 in an operation to rescue an Italian North Pole expedition that was headed by Umberto Nobile.
Nobile's airship had crashed on ice near Spitsbergen but the crew was thrown out of the airship onto ice and survived. A large rescue mission was initiated. Ultimately, the Russian icebreaker Krasin reached the disintegrating ice floe and rescued the remaining survivors seven weeks after the crash.
The Eastern Pipeline Project
27.01.2005
Towards the end of year 2004, the discussion around the Pacific Pipeline project intensified. Finally, on December 28th, the Russian government announced that the decision on the pipeline route had been made. To complement the existing western and southern export directions, the government has now made a decision on an eastern route.
Russian oil producers have demanded new pipelines for a long time; firstly to allow the growth of oil exports, secondly to diversify markets for Russian oil and thirdly to maintain low transportation costs.
The Russian government sees oil exporting from a more political point of view. Russia hopes to reduce its dependence on European trade. It is actively developing its relations to growing Eastern powers such as China, India and Japan. The eastern direction seems more fruitful especially since those countries have markets for Russian raw materials as well. On the other hand, investing in oil exports in a closed market is to be avoided.
So, a decision on the route of the new pipeline was made. The pipeline would run from Taishet to Nakhodka with a branch option to Daqing in China. By constructing the pipeline to Nakhodka on the Pacific Ocean, instead of China, Russia keeps its trade options open. After all, it is estimated, that the Chinese market could only receive 30 mln tons of Russian oil. This is not enough to alleviate the crowded European oil market. The capacity of the Eastern pipeline should be at least 50-80 mln ton/y to avert Urals blend price from dropping further in Europe.
The proposed route for the Pacific Pipeline: Taishet - Kazatsinkoye - Skovorodino - Khabarovsk - Perevoznaya Bay (Nakhodka)
Source: www.transneft.ru
But the final decision on the pipeline construction has not been made yet. Two ministries have demanded for a time-out and asked for a more comprehensive study on the development of the Eastern Siberian oil reserves as a whole to be made. This delay has disappointed Transneft. The Ministry of Economical Development and the Industry and Energy Ministry fear, that the Siberian reserves are not big enough to fill both the expanding Baltic Pipeline to Primorsk and the Pacific Pipeline. At the moment there are only 30 mln tons of oil available in Eastern Siberia and 24 mln ton in Western Siberia to fill the eastern pipeline.
In the mean time, companies have engaged in independent operations. LUKoil has advanced with railway transport projects towards China and the Baltic Sea, partnering with Russia's state railway concern RZD. LUKoil plans to start railway transports to China during the year 2005, since Yukos declared it would suspend rail exports there and because Russia's export commitments to China were not met. Sibneft started exports already last year. Rosneft's financing of the Yuganskneftegaz acquisition has also been linked to the China National Petroleum Corporation oil supplies, which will be transported via railways. It is estimated, that Russian oil deliveries to China will reach 10 mln tons in 2005. The railway company RZD has also announced plans to lower transportation tariffs to China from 72 USD/ton to 30 USD/ton.
Unfortunately marginal export solutions cannot solve the question of large-scale export capacity deficiency. Railways and truck-transports are not economically competitive. As long as private oil pipelines are off limits, companies will have to wait for the Russian government to make the decisions.
Transneft is preparing a series of feasibility studies regarding the Pacific pipeline project. The pipeline is likely to be built in several phases. In the first phase the 2000 km Taishet - Skovorodino pipeline stretch will be complemented by railway transportation to Nadhodka port. In the second phase, the Skovorodino - Nadhodka pipeline will be built. From Skovorodino it is also possible to build a line to Daqing in China. When completed, the pipeline will be 4130 km long and will have cost 11-16 billion USD.
The price is quite high for Transneft alone. Transneft hopes to negotiate tax reductions for the payback period. Elevating transport tariffs will also strengthen the financial base. The government of Russia has announced it is looking for a committed partner for cooperation in the Far East. Japan has offered to help finance the Pacific Pipeline, and in return Russia has offered partnership in developing oil fields in Eastern Siberia. Russia has also emphasized its willingness to develop relations with Beijing. China has offered to finance building of the Daqing line if Russia commits to certain oil supply guarantees.
As always, oil projects are integrated into a larger international framework. The Pacific pipeline project is no exception. The next round of decisions regarding the Pacific Pipeline can be expected by May 2005 at the earliest.
Traffic on the Baltic Sea Growing Further
10.01.2005
Oil exports via the Baltic terminal of Primorsk reached 50 mln tons last year. The rapid growth has meant great changes for the overall traffic volumes in the Gulf of Finland: in January 2005 Primorsk is scheduled to ship 4.85 mln tons of crude oil. The cargo volume equals 50 tanker visits of Aframax size.
In December 2004 the Russian government approved Transneft's proposals of further expansion of the Baltic Pipeline System. The capacity will be increased by 10 mln tons to 60 mln tons annually. The system has grown rapidly since the first section of the pipeline was commissioned in December 2001 to transport oil from Timano-Pechora, West Siberia and Kazakhstan. In 2003 the capacity reached 30 mln tons, and in 2004 it was expanded to 50 mln tons annually.
Along with the Baltic Pipeline expansion, oil transports in the Baltic Sea continue to rise as LUKoil increases its oil transports via Vysotsk. Last year 2.5 mln tons of crude oil and oil products was shipped through the terminal. The construction of a new rail link, bypassing the city of Vyborg, was recently completed. The new route allows LUKoil to transport 7 mln tons of crude and products in 2005. After the dredging has been completed in February 2005, the terminal will accept tankers up to 80000 dwt in size. This means that the Vysotsk terminal will be visited by a large tanker 7-8 times per month. LUKoil's partner in the rail link project is Russian Railways (RZD). The companies have already discussed plans to expand the capacity up to 12 mln tons in 2007.
It is feared, that as the number of tankers visiting the ports of the Gulf of Finland is growing, the transports will soon be restrained by the lack of proper icebreaker assistance. At the moment 11 Russian icebreakers operate in the Baltic Sea. Three of them (Admiral Makarov, Yermak and Kapitan Sorokin) are being used for escorting. Russia has announced that in January tankers with ice class 1C (or higher) are accepted to call the ports; the winter has so far been mild.
The state-owned firm Rosmorport is responsible for icebreaker assistance for ships calling at Vysotsk and Primorsk. Rosmorport's duties include the maintenance of the Baltic icebreaker fleet and fee collection. Rosmorport has placed in orders for two new diesel icebreakers. The vessels are to be built in St Petersburg-based Baltic Shipyard and will be commissioned in 2007-08.