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The four Russian oil producers, which signed an agreement a few days ago to build a new oil terminal at Mur-mansk, Russia’s Arctic port, are taking on not only the state pipe-line operator Transneft, but also the Russian government’s power to regulate and limit the volume of oil exports. If you believe what you read in the papers, you couldn’t help thinking the oil producers have won without a fight.

“If the oil companies have the money for the project, let them build it,” Sergei Grigoriev, vice-president of Transneft, has responded with less hoopla, and more irony. “However, we doubt that they would build a pipeline cheaper and better than Transneft can.”

Transneft has already voiced its opposition to the Murmansk terminal plan, arguing that Primorsk, on the Gulf of Finland, is better positioned to supply European oil markets. Transneft is busy expanding pipeline capacity to boost Primorsk’s shipping volume by laying additional pipeline-delivery capacity to the port.

According to Grigoriev, the proposal to build a pipeline to Murmansk “doesn’t compete with the plan for expansion of Primorsk because Pirmorsk is oriented towards deliveries of oil to Europe, while the Murmansk project is aimed at the United States. No tankers go from Primorsk to the United States.”

For months now, Transneft has been expressing skepticism that a consortium of Yukos, LUKoil, Sibneft and Tyumen Oil Co. would be able to develop a big enough market in the United States to make Murmansk shipments by very large tankers economically feasible.

“I’m sure the oil companies can count their own money,” Grigoriev said. “While they are optimistic about the project now, they may later change their minds when they realize what it actually costs.”

Grigoriev added it is up to the Russian government to decide where scarce investment resources on expanded oil export infrastructure should be built. The Kremlin has already signaled approval for the construction of a pipeline to China, which Yukos officials planned in Beijing this week. Transneft has said it prefers to build a more costly pipeline to a Pacific coast port, and not tie oil exports to a single destination like China.

However, Transneft has lost that argument for the time being. In Murmansk, the oil companies are trying to expand their power even more. Industry analysts in Moscow believe that their memorandum of understanding, signed with a blaze of publicity in early December, is an attempt by the oil majors to lobby the Kremlin. Negotiations with Surgut-neftegaz and other oil producers are under way to expand the Murmansk consortium.

However, according to Sergei Lukyanov, director of Petroleum Argus in Moscow, the main question here is how influential Transneft will be in this project.

“The role of Transneft in this respect is great, as oil companies do not have experience, technical means and resources to operate pipelines by themselves. The Murmansk project is also a matter of relations between the state and the oil companies. Judging by the sum of investment – up to $5 billion – necessary for the Murmansk project, it can be considered a project of state importance. In fact, most likely it will be the state that will pronounce its judgment on the reasonableness and necessity of this project. So the oil companies are likely to use their lobbying capacities to win state support for this project.”

“The oil companies’ dream of doing away with the strong monopoly of Transneft and having a ‘free’ oil export hand,” he added.

At present, Russian law gives the state strict control over every ton of exported crude oil and petroleum products through regulation over access to the pipelines, tariff pricing for pipeline and rail transportation, port control, customs inspection and export taxation.

Between January and June, as the state tried to enforce a commitment to the Organization of Petroleum-Exporting States to cut exports by 150,000 barrels per day, the oil producers boosted rail and truck shipments to evade state control. Next year, with exports expected to rise again, even more oil is planned to bypass the state-controlled pipeline system. Thus, for the Kremlin, defending Transneft becomes a test of whether to let the oil producers get away with it.

According to Lukyanov, “the project for construction of a pipeline to Murmansk and an oil terminal there for 50 million tons of oil undermines Transneft’s project for expansion of the oil terminal in Primorsk up to 50 million tons.”

“I’m sure that Transneft will defend its project in Primorsk, and even if it agrees to the role of operator of the pipeline to Murmansk, it is likely that it will not assist the Murmansk project. At most it will act against it.”

He estimated that Transneft has “enormous lobbying capacities” that will be used to argue against any diminution of state control over oil exports, even if the Murmansk project adds no more than 10 percent to Russia’s foreseeable oil-export capacity. “Since Russian oil exports now amount to 145 million to 150 million tons per year, including exports through Transneft’s pipelines, railway transportation, river tanker transportation and direct delivery from the oil deposits, even if the project in Murmansk is realized, it will have initial capacity of just 10-15 million tons of oil per year,” Lukyanov said. “So, there will be no increase in the overall proportion of oil exported through routes and modes that are independent of Transneft.”

Russian high-sulfur oil can be supplied to the United States, Lukyanov explained, but the growth of output is moving much faster than the export capacity. “The weather is another significant factor that influences exports from Russia.

For example, there is a stormy season in Novorossiisk now, and every winter this creates a surplus of 2 to 4 million tons in December, which is impossible to export.”

“This establishes very serious pressure on the domestic market. So in order to get rid of this type of dependence, Russia has to develop its export capacities through implementation of such projects as Primorsk and Mur-mansk,” he added.

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