State-run pipeline operator Transneft is about to change the mode of relations with transit countries, so that Belarus and Poland may well be left without Russian oil. At the same time Transneft is going to resume supplies to a Lithuanian refinery Mazeikiu Nafta. Transneft stopped pumping oil through a section of Druzhba pipeline in Lithuania’s direction in July 2006. Now it seems that pragmatic approach has won and Russia is looking not for friends but for business partners.
"There are signals from Transneft ... of renewing supplies," reports Reuters, referring to a source, who has access to information about oil supplies to Mazeikiu Nafta through its owner, a Poland company PKN Orlen.at Mazeikiu's owner, PKN Orlen.
Supplies to the only refinery in the Baltic States were withheld in summer 2006, when Russian companies Rosneft, Lukoil, THK-BP and others were competing with PKN Orlen for purchase of refinery from stricken Yukos. The Poland company won the tender leaving Russian companies behind and bought Mazeikiu Nafta, with a maximum refining capacity of 27,000 tons per day, for $ 2.3 billion.
Transneft announced that there were multiple damages on the sector of the pipeline and shut it.
Valery Nesterov, an analytic from Troika Dialog claims that “repair of the pipeline to Mazeikiu will not be completed soon, there are over 7000 damages”, but, according to him, in case of need the pipeline could be repaired faster.
In January PKN Orlen concluded a 5-year contract with oil trader Petraco for purchase of 3.36 mln tons of oil per year from Rosneft. The contractual time can be extended for a year or more. Supplies are to be provided by Druzhba pipeline via Belarus. 200 000 euros fine is supposed for dearth or delay. Thus, the pipeline should be repaired and supplies are likely to be resumed.
At the time, is seems that Transneft is about to build a line around Belarus. According to Kommersant, the Ministry of Industry and Energy has again introduced a draft resolution on a second line of the Baltic Pipeline System, with a capacity of 80 million tons per year, to be built by Transneft. The new line will span Unecha-Velikie Luki-Primorsk. It would increase the capacity of the port at Primorsk to 150 million tins per year and allow Russia fully to bypass Belarus and Poland with its exports to the EU.
This project appeared at the beginning of 2007, when a Russian duty of $180 per ton on oil exported to Belarus went into effect (earlier oil export to Belarus was free of charge). In response Belarus imposed a $45 per ton transit fee on oil pumped through the Friendship line. Then the Friendship pipeline was stopped and Transneft proposed the first version of the resolution on a new branch of the Baltic Pipeline System. Belarus withdrew the transit fee on January 10, after a telephone conversation between Vladimir Putin and Belarusian President Alexander Lukashenko. On January 12, the Russian duty was reduced to $53 per ton, and the resolution on a new Baltic Pipeline branch was returned “for development”. But pretty soon the head of Transneft reminded about it.
Transneft vice-president Sergey Grigorjev reported to Kommersant that, according to the primordial project, the second pipeline was supposed to conduct about 50 mln tons per year, but the head of the company announced that the capacity could amount to 80 mln. For the time circa 100 mln tons are flushed via Unecha, 80 mlns tons go to Europe, 20 mln are exported to Belarus. If the second branch is constructed, the throughput capacity of the port Primorsky will increase to 150 mln. and Russia will be able to deliver oil to the E. U. around Poland and Belarus.
The cost of the building is still disputable. Industry experts estimate that the new branch would cost $2-2.5 billion. There is only one problem with its construction, which concerns the environmental protection. The increase of the Russian oil transit via port Primorsky to 140 mln tons will cause the increase of traffic in the Baltic Sea and Danish straits. Thus dangers connected with tankers traffic, e.g. oil-spills will increase. As the problem of the environmental protection concerns Scandinavians, there could appear some difficulties. Anvar Amirov, an analytic from the Information and Analytical Center “Panorama” considers the project to be quite practicable. According to him, the probability of its realization is one-to-two. Moreover, the mechanism of its financing is still unclear. Druzhba is not supposed to be shut totally, but the transit politics will be more flexible. From the political point of view the project is undoubtedly advantageous.
Valeriy Nesterov considers that the possibility that Transneft will find funds for realization of the project is rather high itself. Transneft can afford it, as the company’s credit rate is extremely high, but it would like to prove the politician profit of the project.
Because of permanent conflicts with transit countries, the oil supplies around Belarus and Poland are advantageous both for Russia and for Europe. Russia will be less dependent on transit countries; European countries will be protected against political difficulties. Moreover Transneft will receive additional oil circulation.
It is obvious that Russian authorities feel anxiety for the transit regime; they permanently accuse transit countries of derangements of supplies. The North European gas pipeline is to be over soon and Belarus will lose all transit advantages. That means a catastrophe for Minsk as all Belarusian economics depends on transit of energy carriers from Russia.
Thus, one could observe two opposite political lines in Transneft’s and Gazprom’s activity. From the one hand, they supply Lithuanian refinery and from the other, they suppose a project of construction of a new pipeline around Belarus, which might be our ally. The story becomes reconcilable, if to remember that there is an oil terminal in Lithuania, so it gives a one more opportunity to reroute oil transit around Belarus. “As Russia has good relations with Lithuania, provided that there will be certain political decision, this variant seems to be real”, claims Anvar Amirov.
It seems, that recently Russia chose rather a business approach in oil and gas industry. The fact, that prices for “friendly” and “hostile” countries became nearly equal, proves that. Nevertheless, if some “wrong” coalition comes into power in Ukraine, the “energy safety” may demand to transit oil and gas around Ukraine as well.
