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