Petroleum Giants Unite

For the first time in the history will begin realization of the large joint oil pipeline project, which should provide for the Russian petroleum new commodity markets. November 27 managers of LUKOIL, YUKOS, Sibneft and TNK signed the memorandum "on mutual understanding of oil pipeline creation for transportation of petroleum through the sea bulk-oil terminal in the area of Murmansk".

The parties have agreed on development in short term of the declaration on intentions "DON". On its basis the further designing, optimum route, diagram of realization of the project will be worked out, and also commercial questions will be solved. It is planned, that preparation of "DON" will be completed in April 2003. Development of substantiations for investments, the feasibility report of construction will be conducted in 2004. Construction of the pipeline is planned in 2004-2007, commissioning in 2007.

Investments of participants will be proportional to volumes of oil, which will be delivered by them through this pipeline. The basic financiers of the project will be LUKOIL and YUKOS: they will finance two thirds of the project, as they will provide filling of pipe by 40 million tons of petroleum. In total these four companies guarantee to deliver through the pipeline 60 million tons: 10 million will be provided by Sibneft and TNK, which will provide the remaining financing. If new participants join the consortium, parameters of individual shares can be reconsidered. This oil pipeline has a doubling carrying capacity up to 120 million tons per year. Soon the project may join Surgutneftegas, and later even some large foreign companies, in particular, TotalFinaElf and Norsk Hydro.

In opinion of analysts, creation of a new route will change opinion about petroleum industry of the Russian Federation, having allowed solving the strategic task of Russian petroleum branch - expansion and diversification of commodity markets. Russia already increases oil recovery on the average by 8 % per year. Domestic demand will not increase more than by 3 % per year, therefore a key question is expansion of export to foreign countries.

Russia on export of petroleum occupies the second place after Saudi Arabia (5 million barrels per day). By 2010 it is planned to increase export to 10 million barrels per day and to occupy 13 % of USA market of energy resources.

Now the parties consider two variants of route of the pipeline: Western Siberia-Uhta-Murmansk With the length of 3600 kms, and Western Siberia-Usa-Murmansk (through the White Sea) with length of 2500 kms, the cost is accordingly $4,5 billion and $3,4 billion. Initial capacity of the pipeline should make 60-80 million tons of petroleum per year, and then it is supposed to reach 120 million tons. According to calculations of the companies, the total tariff for delivery of petroleum from Western Siberia to the coast of USA will be 24,7 $ for 1 ton.

The Murmansk port was chosen, as the sea in it does not freeze and it is possible to load tankers with carrying capacity twice more, than ports of Novorossiisk and Primorsk allow. Therefore it is possible to send large-capacity tankers from 240 000 up to 300 000 tons for export of petroleum to USA. During George Bush's recent visit to Russia presidents of USA and Russia have signed the application for the Russian-American dialogue, in which USA welcomed the initiative on construction of deep-water port in Russia with the purpose of export development.

However still there are obstacles. Analytics are afraid that plans of oilmen to independently permit access to a pipe can meet resistance of officials as to cancel the laws of equal access to the pipeline new federal laws and decrees of President are to be issued. The government probably will not allow supervision of pipeline transportation by oilmen, as it excessively will strengthen their influence on politics. Besides it is supposed, that the operator of an oil pipeline will be Transneft, which is conducting all oil pipelines of Russia, therefore the state can control the project. However Transneft refuses to participate in the project until it sees the real figures, calculations of the four companies seem to it underestimated, in its opinion in conditions of the Far North the kilometer of
a pipe costs $ 2 million.

Also we shouldn?t forget, that the project is designed for favorable market condition in USA, which will buy big volumes of Urals petroleum. In opinion of experts, in case of USA attack, Iraq will turn into a large supplier of cheap petroleum to whom Russia cannot compete.


Author: Nana Bendukidze