Transneft has trouble filling Baku-Novorossiisk oil line

Russia's state oil pipeline operator Transneft said recently that it is prepared to offer financial incentives to companies that pledge to export oil production from the Caspian Sea area through the Baku-Novorossiisk pipeline. At the moment, the pipeline is not carrying any oil at all, as its only customer, the State Oil Co. of Azerbaijan Republic, has halted shipments in order to ensure supplies to Azerbaijan's refineries ahead of the winter heating season.


MOSCOW� Russia's state oil pipeline operator Transneft said recently that it is prepared to offer financial incentives to companies that pledge to export oil production from the Caspian Sea area through the Baku-Novorossiisk pipeline.

A number of foreign oil companies working in the Azeri sector of the Caspian Sea, including BP and ExxonMobil Corp., have refused to send their oil to Novorossiisk, saying that Transneft's tariffs are too high. But the Russian pipeline operator says it would be willing to reduce its fees in exchange for a commitment to export at least 7 million tonnes/year of oil through the pipeline.

Transneft currently charges $15.67/tonne of oil pumped along the route from Baku to the Black Sea port of Novorossiisk, which now includes a 194-mile bypass line through Dagestan. The bypass was built to replace the old middle section of the pipe, which passed through Chechnya.

The Baku-Novorossiisk conduit is capable of carrying 5 million tonnes/day of crude, but Transneft said last week that the line's annual capacity could be raised to 18 million tonnes. At the moment, the pipeline is not carrying any oil at all, as its only customer, the State Oil Co. of Azerbaijan Republic (SOCAR), has halted shipments in order to ensure supplies to Azerbaijan's refineries ahead of the winter heating season.

Transneft did not specify the size of the price cut that might be granted, and it does not appear likely that oil companies will react favorably to the proposal. The BP-led Azerbaijan International Operating Co. (AIOC) stated last week that it prefers not to send its oil to Novorossiisk. Transneft usually mixes the high-quality oil from Azerbaijan with lower-grade Urals crude, AIOC explained.

Meanwhile, the Russian Federal Energy Commission announced it had granted Transneft permission to raise its tariffs by 12.2%, on average, in order to cover the $140 million cost of building the Chechnya bypass.

Two weeks ago, Transneft demanded that SOCAR pay a fine of about $29 million for failure to export sufficient crude through the Baku-Novorossiisk pipeline. But earlier this month, Azeri Prime Minister Artur Rasizade said Baku has no intention of paying a penalty to Transneft.

In 1997, SOCAR agreed to pump 5 million tonnes of oil through the pipe by 2002�including 2.2-2.3 million tonnes in 2000 alone�but so far this year it has sent only 334,000 tonnes to the port. Nevertheless, Rasizade says the Azeris will not pay.

Officials in Baku have said repeatedly in recent weeks that oil exports are being curtailed out of necessity, in order to ensure that the country does not suffer a repeat of last winter's fuel crisis. Shipments to Novorossiisk were halted on June 19, and the Azeri government has said it would not export any oil via Russia in the third quarter of this year. Yet Rasizade indicated on July 5 that this policy might be reconsidered.

Shipments of oil to the Russian Black Sea terminal will probably resume in November of this year, he said. He did not specify what volume of crude might be delivered. No word is available on Transneft's reaction to his statements.

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