Russian firms propose Murmansk terminal for US oil exports

By an OGJ correspondent
NICOSIA, Nov. 27 -- Russia's four top oil firms—OAO Lukoil, OAO Yukos, Tyumen Oil Co., and OAO Sibneft—were scheduled Wednesday to sign a preliminary deal to build a major terminal in Murmansk on the Barents Sea to boost oil exports to the US.

Together, the four firms account for more than a half of Russia's 8 million b/d oil production. Their proposed plan includes building a 1,500 km link between Murmansk and Russia's existing pipeline network.

Russian producers previously proposed US investment in Murmansk terminal as a means of reducing the cost of exporting crude to US markets. Russia already produces far more oil than it can export, due to the lack of pipelines and ports, so producers are scrambling to build infrastructure to reach new markets. At the same time, the US is seeking to diversify its oil supplies.

"Every extra barrel of oil extracted from the ground in 2003 will have to be exported as crude or product, because of zero net domestic growth, hence the importance of trying to develop direct export routes to the US and Japan," said Chris Weafer, an oil analyst with Alfa Bank in Moscow. He estimates that Russia will be exporting 1.2 million b/d more by mid-2003 than it did 18 months ago.

Russia's lack of oil terminals capable of loading tanker consignments of 2 million bbl or more has long been viewed as the main obstacle to large-scale exports to the US market. But that obstacle could be overcome through development of Murmansk, the only ice-free port in northern Russia capable of servicing supertankers year-round.

It would reduce the cost of Russian oil exports, which now start at Novorissisk on the Black Sea, and pass through the Bosporus and the Mediterranean before heading across the Atlantic. Last month, Turkey adopted tough new rules to reduce tanker traffic through the narrow Bosporus strait.

Working together with ConocoPhillips, Lukoil compiled a feasibility report on what it calls the "Northern Transportation System," which would include land and marine pipelines, an ice-free stationary marine terminal at the Varandei oil field, and a fleet of ice-breaking tankers, as well as an oil export terminal at Murmansk. Lukoil officials said the project would provide the shortest sea route to northwest Europe and to the US while resolving the shortage of export capacity for oil produced in Timan-Pechora and the Barents Sea.

Lukoil first floated the Murmansk plan at the Moscow summit in May when US President George W. Bush and Russian President Vladimir Putin signed a joint declaration on creating an US-Russia energy partnership. At that time, Lukoil Vice-Pres. Leonid Fedun emphasized the economies of scale and claimed transport costs of $28/tonne would allow Murmansk oil to compete with supplies from the Persian Gulf.

Lukoil approached Russia's oil transportation company, Transneft, about joining the project; however, Transneft officials remain cool to the idea. Instead, Transneft claims it would be more profitable to lay an oil pipeline from Angarsk to Nakhodka, giving impetus to development of oil supplies in Eastern Siberia and the Russian Far East.

Lukoil's Murmansk project received a boost when Mikhail Khodorkovsky, chairman and CEO of Yukos, Russia's second-largest oil producer, said in August that his firm was considering the idea. "We have requested materials on the Murmansk project from Lukoil and now we are studying them before reaching a decision on this issue," Khodorkovsky said.

Yukos made its first oil delivery to the US from Novorossiysk in July (OGJ Online, July 8, 2002) and said it would attempt regular monthly shipments if feasible transport routes could be found. The company began test shipments of large tanker volumes of crude from its terminal at Vitino through Murmansk port, and may soon begin test loading of very large crude carriers at the same location.

Lukoil built its own export terminal in 2001 at Varandei Bay, which has an annual capacity of 1.5 million tonnes of oil. Varandei loads Timan-Pechora oil into ice-class tankers, which carry it to Murmansk, where larger amounts of crude are collected and reloaded into 300,000 dwt tankers for export to northwestern Europe. The first shipment of oil from the Varandei deposit—10,000 tonnes aboard the Volgograd—sailed in August 2000 and opened Russia's new arctic transport route to European markets.

Plans now call for capacity expansion at Varandei, increasing of oil exports to 20-25 million tonnes/year from 5 million tonnes/year currently.

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