Russian Oil Exports Changing
Directions
George F. Goolsby
Partner-in-Charge
Moscow Office
Introduction
Russian Oil Production/Exports - Current Picture
Russian Oil Production/Exports - General Trends
Existing Russian Oil Export Pipeline System
Primary Russian Oil Export Pipeline Routes
Political Considerations
Case Study 1: Far Eastern Oil Pipeline
Case Study 2: Baltic Pipeline System
Case Study 3: Bosphorus By-Pass Projects
Contents
Russian Oil Production/Exports Current
Picture
Oil is the number one energy asset of Russia - second
largest oil exporter after Saudi Arabia
After significant declines following the dissolution of
Soviet Union, Russian oil production has rebounded
to approximately 9 mbd and is expected to reach 9.5
mbd in 2005
Approximately 5.2 mbd of Russian oil production was
exported in 2004
Russian Oil Production/Exports Current
Picture (conťd)
Russian oil exports are achieved by means of pipeline
(60%), rail (33%) and barge (7%) - our focus today is on
pipelines
Russia's current oil export pipeline capacity is
approximately 4 mbd
Two-thirds of current Russian oil exports are to
Central and Eastern Europe (includes exports to
Germany)
Artificially low domestic prices for oil that cannot be
exported
Russian Oil Production/Exports General
Trends
Substantial oil production growth since 1991, but
growth is now slowing - reasons include the "Yukos
Effect"
Increasing export costs - rouble/dollar exchange rate
has contributed to recent increases, but so too have tax
increases
Non-CIS exports stagnant or falling
Exports by rail declining from historical peak in 2003
and major destination shift from Black Sea ports to
China (rail only)/Barents Sea
Substantial investments in extra export pipeline
capacity are proposed
Existing Russian Oil Export Pipeline System
General Characteristics
Transneft monopoly on crude pipeline transportation
Physical/commercial bottlenecks and inefficiencies (particular
constraints in northern and artic regions)
High tariffs and taxes (oil export tariff raised to a record $140
per ton from 1 August)
Reliability/safety issues
Debate as to introduction of effective quality bank system
Oil producers have expressed discontent with Transnefťs
tariff structure, its export pipeline routes and its access
priorities
Primary Russian Oil Export Pipeline Routes
Transneft network comprises almost 49,000km of oil
pipeline
Political Considerations
Role of Transneft as an instrument of the Russian State
National aspirations to diversify export routes
Key oil export directions (current and proposed) are (1) East
to Asia (2) Baltic Sea and (3) Black Sea
Geopolitical aspects
Precedence will be given to sea ports/projects in which
Russia has a stake (will discuss in context of BPS)
Potential role of private investors in export infrastructure
projects at the expense of Transneft - Premier Mikhail
Fradkov has previously stated that there will be no private
pipelines in Russia, while Transnefťs president has stated
that "The current situation where oil companies are
themselves determining their export volumes, in my opinion,
is not right"
Case Study 1: Far Eastern Oil Pipeline
The Project:
Transneft proposal calls for Phase 1 from Taishet to Skovorodino
(30 mt per year capacity) with rail shipments from Skovorodino to
Pacific until Phase II. Estimated Phase I cost is $6.5 billion. Phase
II involves expansion of Taishet to Skovorodino line and extension
of pipeline to Pacific coast, bringing total pipeline length to around
4,000km and project total cost to around $11.5 billion. Construction
is intended to begin in Q3/Q4 2005
Case Study 1: Far Eastern Oil Pipeline
Drivers:
As Western Siberian reserves decrease, Eastern Siberian
exploration hoped to increase
Massive increase in energy consumption by China, Japan
and South Korea (but branch line to China not certain)
Russia's Asian geopolitical priorities
Attractiveness of Eastern Siberian oil investments questioned
by some analysts - production will need to receive export
prices (c.f. local prices) in order to be profitable
Increases Russia's ability to select buyers - increases
diversity of export routes
Case Study 1: Far Eastern Oil Pipeline (conťd)
Hurdles:
Project success depends on exploration results from Eastern
Siberia (oil supplies rather than demand tend to drive oil
pipeline projects). An estimated $7b in upstream
exploration/production investments will be required. Largescale
licensing needed in the immediate future
External finance (particularly for Phase II)
Environmental concerns with routing - Lake Baikal UNESCO
reserve
Pipeline faces competition from state-owned rail, which is
seen as more efficient at current volumes (volumes expected
to be 10mt in 2005 and 15mt in 2006 by rail). Investments in
2005 for Russia's main railway company (RRC) include
resources for infrastructure to increase oil exports to China
Case Study 2: Baltic Pipeline System (Expansion)
The Project:
BPS commenced operation in December 2001
Proposed expansion of Baltic Pipeline System in 2005-06
from 47.5mt per year to 62.5mt per year. Completion
targeted for Q1 2006
Case Study 2: Baltic Pipeline System (Expansion)
(conťd)
Hurdles:
Definite schedule for expansion and finance obtained, but
proposed Indiga Project and expansion of Varandey
(advocated by Lukoil) would likely divert Timon Pechora
volumes
Lukoil and Rosneft have been slow to commit additional
volumes to the BPS
Baltic states concerned that expansion will deprive them of
Russian oil transit revenues
Case Study 2: Baltic Pipeline System (Expansion)
(conťd)
Drivers:
BPS originally constructed to provide enhanced transit from
Timon-Pechora and Western Siberia basins in an "all
Russian" system to the all weather port of Primorsk - high
political motivation
Direct outlet to northern European markets
Reduces dependence of Russia on transit services of Latvia,
Lithuania, Estonia and Finland
Case Study 3: Black Sea - Bosphorus By-Pass Projects
The Projects:
Burgas - Alexandroupolis (April 2005- participant countries sign a
memorandum of Cooperation. Interested parties include TNK-BP,
Lukoil, Gazprom, Rosneft and Helenic Petroleum)
Burgas - Viore (December 2004 - participant countries give "goahead".
Tthe project has EU support and finance arranged from
OPIC, CSFB and others)
Constanta - Trieste (June 2005
- participant countries sign
agreement endorsing project.
BP, OMV and Chevron Texaco
are among interested parties,
the project also has USTDA
support)
Kiyikoy - Ibrihaba
Samsun - Ceyhan
Plotsk- Brody
Case Study 3: Bosphorus By-Pass Projects
Drivers:
Bosphorus shipping congestion concerns and associated
transit costs - the "Turkish Knot"
Environmental concerns
Hurdles:
Uncertainty of future available oil volumes at Black Sea ports
Ability of project sponsors to obtain through-put commitments
to support project finance
Samsun - Ceyhan option needs to overcome general
wariness of exporters in placing "too many eggs in the
Turkish basket"
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