Friday, May 14, 2004
No room for Russia to raise oil exports
Reuters Moscow, May 14
Russian crude oil exports have hit a ceiling and after many years of growth the world's second largest exporter cannot raise shipments unless new pipelines are built, oil pipeline monopoly Transneft said on Friday.
Transneft head Semyon Vainshtok told Reuters in an interview that Russia, the only major non-OPEC producer to boost output significantly in recent years, may need to curb production growth very soon because of export pipeline bottlenecks.
Vainshtok, Russia's oil export supremo, said Transneft was already delivering just over four million barrels per day of crude, and warned he needed to expand the system by at least 800,000 bpd to sustain growth.
"Transneft is expanding its system, but we are not meeting the demand of our oil companies... It's a very tough period. We are still short of 40 million tonne (800,000 bpd) capacity and we cannot solve the problem without building new pipelines."
"We need the government to quickly decide on the expansion of (the Baltic Sea port of) Primorsk and a decision on at least one major pipeline," he said.
Asked whether an oil output boom that has seen Russian production rise 50 per cent since 1999 would continue, Vainshtok said: "Oil firms may of course add just a bit. But we are cracking, we can't accept more."
With oil prices at an all-time high of $41 for US crude, Vainshtok's comments may cause alarm among importing nations primarily reliant on Russia in recent years for incremental supplies.
While OPEC has boosted oil prices by restraining supplies over the past five years, net growth outside Russia and its CIS neighbours Kazakhstan and Azerbaijan has been very slow.
Vainshtok said Transneft's crude exports will average about four million bpd this year, up 18 per cent from 2003, while crude output will rise nine percent to 9.2 million bpd.
Russia exports about another one million bpd of crude by rail plus 1.5 million bpd of refined petroleum products.
Vainshtok has often had to wait months for official approval for each stage of his ambitious project to turn Primorsk from a small outlet into Russia's flagship 860,000-bpd Baltic port.
He now wants to expand it to 1.25 million bpd from the already approved one million bpd, but government decision-making has slowed significantly since a reshuffle two months ago by President Vladimir Putin.
Vainshtok said Primorsk alone would not help solve the pipeline bottleneck and Russia needed another major pipeline.
He favours a huge 4,500-km (2,815-mile) pipeline to the Pacific coast despite the fact that inflation and high steel prices have seen cost projections baloon to $12 billion from an initial $5.0-7.0 billion.
"The Pacific route is the most attractive. Here we kill many birds with one stone. We encourage the development of Eastern Siberia, which will be never developed without this pipeline. And it also has huge geopolitical significance," he said.
Vainshtok said the idea of private oil firms building a pipeline to the Arctic port of Murmansk on the Barents Sea needed further study. He welcomed oil major YUKOS's plan to switch oil supplies to China to rail after initially wanting to build a 600,000 bpd pipeline.
FULL INDEPENDENCE
Vainshtok said Russia should ideally be able to ship all of its exports directly from its own territory and not rely on transit shipments through Lithuania and Ukraine.
"We should be 100 per cent independent. We are paying big money to transit states in the form of tariffs enabling them to develop their industries," he said.
Last year, Transneft stopped shipments to the Latvian port of Ventspils after exporting 300,000 bpd through the port in the past and many traders say ports such as Ukraine's Odessa and Lithuania's Butinge may one day become victims too.
Vainshtok said export capacity shortfall would not allow Russia to stop using these outlets in the near future, but they would have to cut loading tariffs in the future when new Russian routes brought stiffer competition.
He also said that, after several expansions at Primorsk, Transneft's pipeline system from Siberia was so full that the monopoly would need $2.6 billion to reopen a route to Ventspils as it would need to build a new link straight from Siberia.
"New projects in Russia will be of similar cost. So don't believe those who say that we can reopen Ventspils overnight". He said oil firms sidestepping the overstretched pipelines by resorting to alternative means such as rail and river would also soon face an unpleasant surprise -- not only are export routes full, but so is the trunk domestic link. That means no more oil from Siberia to the main rail hubs.
Vainshtok also said he believed oil prices would remain very high:
"Realistically, the capacity of suppliers does not today meet growing demand in places such as China or India. And you have to take into account the state of affairs in Iraq."
© Hindustan Times Ltd. 2004.