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Russia: Disputes Stall Energy-Export Plans

  • Michael Lelyveld

Intrigues are mounting between Russia's private oil companies and the powerful Transneft pipeline monopoly as the government tries to promote the country's new status as an exporter and a safe place to invest. The disputes have stalled export plans and damaged Russia's image, but President Vladimir Putin has been slow to intervene.

Boston, 18 December 2002 (RFE/RL) -- After months of friction with domestic and foreign oil companies, Russia's pipeline monopoly Transneft now seems to be frustrating government policy on two fronts at once. The state-owned operator of Russia's vast oil network has been resisting government plans for boosting exports to the United States and China as it fights to maintain control over oil transit in both the west and the east.

The twin disputes have raised a familiar question about the nature of power in Russia and who wields it. While President Vladimir Putin has ultimate authority, energy monopolies like Transneft and Gazprom often act on their own.

Last week, the industry newsletter "Petroleum Argus" suggested that Putin's patience may finally be running out. Although Transneft's well-connected chief executive Semen Vainshtok usually has no trouble gaining access to the top levels of government, he has been unable to get an audience with Putin since October, the newsletter said. But it is unclear whether Putin is showing anger, shunning a showdown, or simply trying to figure out what to do with Transneft and the energy empire it controls.

In the northwest, Transneft is opposing a project to build a pipeline and oil terminal at the arctic port of Murmansk that has become a major part of the energy partnership with the United States, declared at a Moscow summit with U.S. President George W. Bush last May.

Five private Russian oil companies have pledged to back the $4.5 billion plan to boost oil exports to the U.S. market. But Transneft has cast the effort in unflattering terms.

This week, "Asia Times Online" quoted Transneft Vice President Sergei Grigoriev as saying: "If the oil companies have the money for the project, let them build it. However, we doubt that they will build a pipeline cheaper and better than Transneft can." He added: "I'm sure that the oil companies can count their own money. While they are optimistic about the project now, they may change their minds later when they realize what it will cost."

Transneft's biggest problem with the project is that it does not control it. Although the oil companies have considered a role for the monopoly as either the "state agent" or operator, they are wary that it would then try to raise tariffs and kill its profitability. Instead, Transneft has been backing a competing outlet at the port of Primorsk on the Gulf of Finland for exports to Europe.

In September, Transneft launched a project to increase the capacity of its Baltic Pipeline System to Primorsk from 240,000 to 360,000 barrels per day. This week, it submitted plans to raise it further to 600,000 barrels. According to "Petroleum Argus," the goal is to reach 1 million barrels per day. Vainshtok has said the expansions would "ruin" the Murmansk project, since Russia does not have enough oil for both ports.

To the east, Transneft is also playing havoc with plans for a 2,400-kilometer pipeline from Siberian fields near Angarsk to China's oil center at Daqing, which would be the first between the two countries. The issues and the adversaries are much the same.

Yukos wants to build the $1.7 billion line to China, which has been backed by Putin and Chinese leaders at a series of summits. But Vainshtok has argued that Russia should not rely on the Chinese market alone, any more than it should invest in exporting to the United States. Instead, Transneft has pressed the government to support a $6 billion line to the Far East port of Nakhodka that could ship Russia's oil elsewhere.

"Petroleum Argus" said that if Vainshtok fails to persuade Putin to accept the plan, it will propose an alternate northern route for China that could raise costs to prohibitive levels. Putin may be trying to make his decision before being subjected to such intrigues.

But the newsletter argues that Transneft has been the target of similar strategies. Following Vainshtok's resistance on the China plan, LUKoil President Vagit Alekperov reportedly came up with the idea for the Murmansk initiative. Alekperov is said to have calculated that Putin would support exports to the United States while Vainshtok would oppose them. "Petroleum Argus" said the plan was to deliberately put the two at odds.

In an editorial, the newsletter wrote, "The proposal is a deliberate effort to break the Transneft monopoly, say sources at the firms that have signed up for it." If that is the case, Putin may have good reason for delaying a meeting, since the government wants to keep some control over the oil companies.

Meanwhile, Transneft's campaign to punish Latvia's port of Ventspils by withholding oil as part of a takeover struggle for the facility has slowed Russia's exports, deepening a domestic glut that has driven prices down to $5 per barrel. The problem may only fuel more strategies to curb Transneft's power.

For foreign companies, the struggles are only a symptom of the same kind of trouble they have been having with oil exports from Kazakhstan. The companies have been fighting a plan by Russia's Federal Energy Commission to raise tariffs on the Russian portion of a $2.5 billion pipeline from Kazakhstan's Tengiz oil field to the Black Sea, which opened last December. The commission would list the pipeline on Russia's monopoly register as a way to hike fees.

The series of problems comes as Russia is trying to raise its status both as an oil exporter and as a safe place for investment. But Putin's delay in facing the squabbles has only made matters worse.

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