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Russia: Moscow Signals Opening To Private Oil Pipelines

Russia has signaled that it will clear the way for construction of private oil pipelines for the first time as a way to increase exports to the West. The move suggests that Moscow will keep raising production and challenging the Organization for Petroleum Exporting Countries while pursuing policies aimed at the U.S. market.

Boston, 18 April 2003 (RFE/RL) -- The Russian government appears ready to break its own monopoly over oil pipelines for the first time in order to boost energy exports to the United States.

This week, Russian Energy Minister Igor Yusufov announced a decision to ease the government's grip over pipeline ownership, allowing private oil companies to invest in a new U.S. export route through the Arctic port of Murmansk. Yusufov said, "The strategic decision that the pipeline should exist has been taken," Reuters reported.

Yusufov added, "The government has for the first time made public its position that the state is not trying to fully own new pipelines, but it reserves itself the right to monitor and regulate the transport infrastructure." Speaking after a cabinet meeting yesterday, Yusufov said the government would launch a feasibility study for the Murmansk route.

The statement seemed to signal an end to the long battle between Russia's private oil companies and the state pipeline monopoly Transneft, opening the door to a $4.5 billion project for shipping oil to the United States and other Western markets. Transneft has been waging a fierce fight against the private project, which would build a line from western Siberia to the ice-free port. Despite its distance, Murmansk is closer to the U.S. market than the Persian Gulf.

In an interview last month with the RosBalt news agency, Transneft chief executive Semen Vainshtock said: "Major pipelines are a matter for the state. We don't rent out the country's borders, do we? So why should we hand over our pipelines?"

But the well-heeled oil majors -- led by Yukos, including LUKoil, Tyumen Oil Company (TNK), and Sibneft -- have put up a fight of their own. Last month, Yukos chief Mikhail Khodorkovskii recruited Union of Rightist Forces leader Boris Nemtsov, a former energy minister, to back private pipelines at a press conference in Moscow. Nemtsov said, "This will bring $100 billion of investment into the economy without the state spending a single kopeck," "The Moscow Times" reported.

The Yusufov announcement may mean not only a victory for private companies but also a more public role for Russia's U.S.-oriented policies with the end of the Iraq war.

Yusufov's declaration seems to have adopted the companies' plan to be free of direct Transneft control over export volumes and transit fees, although it is unclear how much power the government would retain. The project, which is scheduled to start exporting in 2007, would pump up to 80 million tons of oil per year, or 1.6 million barrels per day.

The Russian companies are trying to capture a 10 percent share of the U.S. oil market, offering an alternative to the Organization for Petroleum Exporting Countries (OPEC). Russian oil accounted for about 1 percent of U.S. imports in the first two months of this year.

Tankers at Murmansk have loaded a little more than 1 million tons of oil since shipments started last October. A pipeline to supply the port would follow one of two routes, running either 2,500 or 3,600 kilometers. Yusufov said plans call for building a new terminal at Murmansk first and a pipeline only in the second stage. But the oil companies are pleased with the sign that they may have won in their struggle.

Reuters quoted Yukos spokesman Aleksandr Shadrin as saying, "We can only welcome this decision and promise from our part to do our best in implementing the project as fast as possible."

But it is safe to say only that the companies may have won.

Recently, some of Yusufov's statements have been contradicted almost as quickly as they have seen the light of day. Last month, Yusufov emerged from a similar government meeting to announce that a decision on oil pipelines to China and Japan had been delayed until 1 May. One day later, Prime Minister Mikhail Kasyanov said a "conceptual decision" had been made and that the May deadline was only a date for submitting details.

It is unclear whether the government has actually ruled that private pipelines are permissible in all cases, and if so, whether that rule would apply to the China pipeline, which is also a Yukos project.

The government also seems to have wrapped whatever good news it has for the companies in what may be better news for Transneft. The official RIA-Novosti news agency reported that Energy Ministry experts have called for "giving priority" to Transneft's project for expanding the Baltic Pipeline System to the port of Primorsk on the Gulf of Finland. New lines could increase Primorsk's capacity to 1 million barrels per day, making it Russia's biggest oil port.

The project could be finished before Murmansk, stealing much of its potential, particularly if Transneft succeeds in a scheme to create offshore facilities for supertankers.

Russian President Vladimir Putin met with Vainshtock for a working meeting, RIA-Novosti reported, but Putin's orders for Transneft were not immediately known.

Yusufov's separate statement on oil prices suggests that Russia will pursue policies to boost production and exports, perhaps promoting the interests of oil-consuming countries at OPEC's expense. Yusufov said that prices would fluctuate between $20 and $25 per barrel, a lower range than OPEC wants. He said, "This is in line with the interests of Russia as an oil producer and of consumers."

When asked whether Russia would support OPEC moves to cut production, Yusufov was careful not to be pinned down, saying Moscow would do so "if they correspond with our interests."