China link guarantees Russia oil exports

MOSCOW (Reuters) - Russia sees its new oil link to China as a way of guaranteeing its exports in the face of possible hostility from the EU, the head of Russia’s pipeline monopoly said on Wednesday.

Nikolai Tokarev, the president of Russian oil pipeline monopoly Transneft, speaks during an interview at the second Reuters Russia Investment Summit in Moscow September 10, 2008. REUTERS/Alexander Natruskin

Nikolai Tokarev, the president of Transneft, also told the Reuters Russia Investment Summit that the Ukrainian ports of Odessa and Yuzhny, as well as the Polish port of Gdansk, could stop receiving crude from 2012 when Russia finished a new link to the Baltic Sea, known as BTS-2.

The United States and the European Union have heavily criticized Russia over its military action in Georgia, the first time Moscow used troops outside its borders since the end of the Soviet Union. Poland and Ukraine have called on the EU to cut dependence on Russian energy.

Tokarev, a close ally of Russia’s former president and current Prime Minister Vladimir Putin, from his KGB days, said a $14 billion new oil pipeline from Russia’s Siberian oilfields to China would give Moscow more security about its exports.


“It is an expensive pipeline but...can allow Russia to feel safer”, he said.

Tokarev referred to a meeting of EU foreign ministers this month, which froze cooperation talks with Russia in protest at its action in Georgia but stopped short of tougher measures.

“We all remember what happened at the EU summit... If we didn’t have the Eastern pipeline and the Baltic pipeline, I’m sure their decisions would have been much tougher,” he said.

The Asian pipeline’s launch has been delayed by a year to the end of 2009 but Tokarev said he was sticking by the latest deadline and rejected criticism from some oil firms that the expensive link was not needed.

Russia would stop sending crude through Ukrainian and Polish ports, he said, because of the risk Ukraine would stop using its Odessa-Brody pipeline to export Russian crude to the Black Sea and use it to send Caspian Sea crude to Central Europe instead.

“We can of course say that this discussion (in Ukraine) is a bluff... But if it happens we will have to do something with the 20 million tons going to Ukraine now,” Tokarev said at the event, held at the Reuters office in Moscow.

Russia ships around 20 million tons a year (400,000 barrels per day) via the ports of Odessa and Yuzhny.

“We are also feeding the port of Gdansk. I want to ask you why?”, said Tokarev.

He said Ukrainian plans to expand the Odessa-Brody link to Gdansk would prevent the Russian crude from flowing to some destinations along the Druzhba pipeline to central Europe, because the pipelines cross at certain points.

“We won’t be able to guarantee uninterrupted supplies. And then again there will be comments that we are unreliable suppliers,” he added.

He also added that one more incentive to expand the Baltic link was the fact that Russian production was set to rise by 1.2 million bpd by 2012, of which half would go to domestic refineries, while the rest will have to be exported.

Russia’s Baltic Sea coast is already home to the country’s biggest oil export outlet, Primorsk, which was built together with the first stage of the Baltic pipeline earlier this decade after Russia cut exports via Latvia and Lithuania.

Tokarev said Primorsk had become the most attractive export destination for Russian companies and the same would happen to the second stage of the Baltic pipeline when it is built in 2012 after the government decides on financing later this year.

The idea of the second stage of the Baltic link first emerged after Russia briefly cut exports via Belarus to Poland and Germany amid a pricing dispute with Minsk in 2007.


But Tokarev said his firm now had no problems with Belarus and planned to maintain supplies via Druzhba to central Europe, including Poland and Germany, after the Baltic link is expanded.

He also said the Asian route would become as popular among oil firms as Primorsk when they realized that premiums in Asia were often higher than in Europe while the cost of pipeline shipments to Asia would equal those to Europe.

If Russian firms fail to clinch a pricing deal with China by end-2009, Transneft could divert all of the Asian pipeline’s volumes to the Pacific instead of splitting the 600,000-bpd capacity equally between China and the Pacific, he added.

Reporting by Dmitry Zhdannikov; editing by Anthony Barker