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Surfeited Europe Hinders Oil Companies to Export Oil Profitably

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  • David Bier
    http://www.kommersant.com/page.asp?id=574369 Surfeited Europe Hinders Oil Companies to Export Oil Profitably // Interview Russian Industry and Energy Minister
    Message 1 of 1 , Apr 30, 2005
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      Surfeited Europe Hinders Oil Companies to Export Oil Profitably

      // Interview
      Russian Industry and Energy Minister Viktor Khristenko signed on April
      26 a decree On Determination of the Stages of the Construction of the
      Pipeline System Eastern Siberia â€" the Pacific Ocean. Semyon
      Vainshtock, president of Transneft oil transporting company tells
      Kommersant correspondent Irina Rybalchenko about the details of the
      - You have stated that the route of the construction of the Eastern
      oil-pipeline will most likely have a branch tube for Daquing. Has this
      question been settled and who will finance the construction of this
      section â€" the Russian or the Chinese party?

      - The decision on the branch tube for China has not been made yet. If
      we decide to stretch a branch tube for China, then the construction of
      this 70-km section will be financed by Transneft since this section is
      in the Russian territory.

      - It is planned to pump 30 million tons of oil from the Western
      Siberia and 5 million tons from the Eastern Siberia after the project
      has started working at capacity. There are only two well-known
      oil-fields in Siberia â€" Talakanskoye (the license pertained by
      Surgutneftegaz) and Verkhnechonskoye (the license belongs to
      Verkhnechonsk-Neftegaz owned by TNK-BP, Interros and the Committee on
      the Handling of the State Property of Irkutsk Region).They will be
      producing no more that 17 million tons by 2010. Where will you get the
      rest of the oil?

      - These apprehensions are natural. But the Eastern Siberia’s oil and
      gas provinces will never be developed if we don’t build a pipeline
      there. If we come there with the Eastern Pipeline, the development
      will be far more sustainable. Overheated western routes and surfeited
      Europe now hinders oil companies to export oil profitably. So our task
      is to give oil companies a chance to choose and change the direction
      of the export. The economic advisability may be ensured only due to
      this flexible approach.

      - But the oil export tariff in the Eastern Pipeline will amount to
      $49.9 per 1 ton, which is much higher than on the western route. How
      are you going to convince oil companies to export oil by the new route?

      - We will use net tariff, i.e. the farther you export, the cheaper it
      will be, the closer â€" the more expensive. We plan to set this kind of
      tariff from the launch of the Eastern Pipeline, and let oil companies
      choose which market is more preferable for them. Railways now work
      according to this scheme. As for the European market, it is indeed
      heavy: discounts for the Russian oil in Europe total up to $7 per 1 ton.

      - If the decision on the construction of the branch tube for Daquing
      will be taken, how are going to chose which companies will transport
      oil to Chine, and which â€" to Nakhodka?

      - Just the way we are choosing now: it will depend on the total volume
      of the oil delivered to the system of Transneft. The Ministry of
      Industry and Energy suggests the allocation of the quotas. After all,
      we haven’t got lost where we should send the oil of which companies â€"
      to Germany, to the Czech Republic, to Slovakia etc. So we won’t get
      lost now.

      - Are you anxious that after 30 million tons of the Western Siberian
      oil, best in quality, is exported by the Eastern Pipeline, the quality
      of the oil exported to the West will deteriorate sharply? Perhaps you
      will have to introduce a new standard of oil, other that Urals?

      - No, it’s not the volume is not that large to speak about the change
      in the quality of oil supplie to the West and the new standard for the
      Russian oil. But these 30 million tons will sure to get a bonus for
      the quality. Its size will the subject of the talks between oil
      companies and consumers.

      - Do you consider the scheme which will enable oil companies to
      participate in the financing the Eastern Pipeline’s construction?

      - No. Moreover, Transneft won’t take advantage of any privilege, tax
      preferences, budget funds or the Government’s guarantee. We can
      attract some $7-8 billion for 15 â€" 18 years at a very low financing
      rate, taking into account the current rating. For example, we have
      invested $ 3 billion engaging borrowed funds for the last 3 years and
      a half, our credit insurance amounts to $500 million. Besides, our
      tariffs are the lowest in the world.

      - At the first phase of the construction the oil from Skovorodino to
      the Perevoznaya bay will be transported in the tanks by the railroad.
      But you haven’t come to an agreement with the Russian Railways yet,
      have you?

      - The question turns on the tariffs. I am strongly convinced that the
      tariffs on the tube transportation from Surgut to Skovorodino must be
      $49.9 when delivering oil to China. The total tariff for the
      transportation from Surgut to Skovorodino by the tube plus a railroad
      tariff Skovorodino â€" Perevoznaya should also amount to $49.9 per 1
      ton. An oil company shouldn’t care how to export the oil: either by
      the railroad and the tube, or by the tube only.

      - Are the people at Russian Railways of the same view?

      - Otherwise, we will simply load oil in Skovorodino. We hope to make a
      decision that will suit both the oil companies and Russian Railways.

      - Minister of Trade and Economic Development German Gref once again
      expressed his thought that the Northern Pipeline should be built using
      the foreign companies’ funds as well. Are you against it?

      - Transneft could have coped with the two projects simultaneously â€" I
      mean the Eastern and the Northern Pipelines. We are still working over
      the both projects â€" we plan to complete the project of the Baltic
      Pipeline System (BTS) in nine months. At the same time preparations
      for the works on the Eastern Pipeline are underway. We are replacing
      325 kilometers of the pipelines this year, and plan to replace 350
      kilometers the next year. After finishing the construction of the BTS
      we could have focused on the eastern and the northern directions. The
      infrastructure of transportation pipeline system must be state-owned.

      - The Northern Pipeline involves the oil export to the USA from the
      terminal in the Barents Sea. But now only LOOP terminal in Louisiana
      and a terminal in Canada can receive super size tankers with the
      dead-weight capacity of 250,000 tons…

      - Before the construction of the Northern Pipelines has started, the
      decision on the possibility of the service of super size tankers
      should be made. Now receiving terminals are overloaded, and the
      Americans should guarantee they will provide the conditions for
      receiving additional oil.

      - Take into account ambitious plans to carry out two large export
      projects, is Transneft going to try and obtain the rise in the tariffs
      from the Federal Tariff Service?

      - Yes, but only within the limits of the inflation.

      - Do you intend to cut the proportion of dividends?

      - No, but the law says that we are obliged to allocate 10 percent of
      net profit for dividends, and we will adhere to these terms.

      - Minister of Industry and Energy Viktor Khristenko has visited Tokyo
      this week, among other things he discussed the Eastern Pipeline
      project. Do you view Japan as a potential creditor?

      - Crediting Eastern Pipeline is a not a risk, but a privilege. So we
      are not going to accept everyone as a creditor. If Japan offers us
      conditions better that those of others, then it may be considered a
      potential investor, but that’s it. We do not make request for anyone
      to finance the project.
      by Irina Rybalchenko

      Russian Article as of Apr. 29, 2005
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