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Russia: Chevron To Join With Lukoil To Export Tengiz Oil

Moscow, 31 October 1996 (RFE/RL) -- The Chevron corporation appears ready to accept Russia's oil giant Lukoil as a partner that could help it transport oil from Kazakhstan to international markets.

Chevron holds a 50 percent stake in Tengizchevroil, a joint venture formed more than three years ago with the Kazakh government to exploit its Tengiz oil field.

When the $20 billion joint venture was formed in 1993, it was called the deal of the century. With at least 6,000 million barrels of recoverable oil, the possibilities seemed limitless. But Chevron soon ran into a brick wall.

At the time, Chevron expected a new pipeline connecting Tengiz to the Russian Black Sea port of Novorossisk to be up and running soon. But the consortium formed to develop the pipeline got bogged down in financial disputes and meddling from Moscow.

Chevron was left high and dry, forced to turn to Russia's existing pipeline network to export its oil to international markets. But Russia's pipeline monopoly, Transneft, imposed quotas on Kazakhstan, limiting how much Tengiz oil could flow to outside markets.

In April, the U.S. oil company Mobil acquired a 25 percent stake in Tengizchevroil. The hope was that the involvement of another oil company would help resolve problems with finding export routes.

Dmitri Dolgov, a spokesman for Lukoil, told RFE/RL that the company expects to conclude talks by the end of November on joining Tengizchevroil. He said talks, which began some two years ago, are now at the final stage on an agreement to give Lukoil up to a 15 percent share in the joint venture.

Dolgov declined to give details of the deal. However, he said Lukoil's future stake in Tengizchevroil should have what he called "a very good impact" on the joint venture's ability to export more oil through the Russian pipeline network to international markets.

Lukoil has twice before announced it had reached a preliminary agreement on acquiring a stake in Tengizchevroil and promised that a formal agreement would soon follow. But that agreement never came. Now, however, energy analysts believe there is a momentum to sign the deal by the end of the year.

James Bunch, an economist with the Moscow-based brokerage house Renaissance Capital, told RFE/RL that everyone involved probably wants Lukoil's stake in Tenizchevroil finalized before the year is out in order to get more oil flowing as soon as possible. He said the only reason Chevron wants Lukoil in the project is to get better access to the Russian pipeline network.

"The value Lukoil adds is political connections," said Bunch.

If finalized, the deal would cement Lukoil's growing presence in Central Asia and the Caucasus. As Russia's largest oil company, Lukoil has been leading Moscow's efforts to get ahead in the international oil rush in the Caspian region.

However, even if Lukoil uses its influence to get more Tengiz oil pumping through Russian pipelines, it will not solve all Chevron's problems.

At the moment, Tengizchevroil can only export about 100,000 barrels of crude oil a day through the Russian pipeline network because of quotas. But Tengizchevroil is expected to more than double its output over the next two years, and Russia's undersized pipelines will not be able to cope with the increased production. Moreover, the new Caspian pipeline is scheduled to be completed by the end of 1998, at the earliest.

Chevron is currently testing an alternative route to ship Tengiz oil by barge across the Caspian Sea to Azerbaijan, and then by train to Georgia's port of Batumi.

Bob Williams, manager of public affairs for Tengizchevroil in Almaty, told RFE/RL by telephone that the company is only assessing the viability of the route at this stage. He said the first shipment of 7,000 tons of oil reached Batumi earlier this month.

Williams said it is "an attractive transportation route" which could result in a 25 percent increase in the amount of Tengiz oil reaching international markets.

But an RFE/RL correspondent in Baku reports that none of the oil shipped from Kazakhstan to Baku earlier this month has yet been unloaded from barges. Azerbaijan's state oil company, SOCAR, says the deliveries have not been forwarded to Batumi because the railroad infrastructure is insufficient.

For some, the idea of shipping oil by barge and then train smacks of desperation. But others see it as an attempt by Chevron to maintain a security of supply.

Renaissance Capital's Bunch says Chevron is "trying to take the political trump card away from the Russian pipeline network." As he summed it up: "They are trying to find some breathing room."