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Transneft: Russian Oil Output Slowing

The country's crude oil output growth will slow significantly in 2005 as companies fail to maintain the hectic growth rates of recent years, crude pipeline monopoly Transneft's head, Semyon Vainshtok, said Tuesday.

"Russian companies have underproduced 14 million tons in January-September compared to what they initially planned," he told reporters during a news conference.

"This is a sign that the level of growth is decreasing considerably. We can no longer talk of growing at the same pace," he said.

The country increased output 11 percent in 2003 to 421 million tons, and will boost production around 7 percent this year to 450 million tons.

Production hit a new post-Soviet high of 9.42 million barrels per day in September.

Analysts say one reason for declining growth is the tax troubles of oil major Yukos.

Vainshtok did not say whether he believed the Yukos case was behind falling growth, but reiterated that its oil exports to the West were guaranteed as it clinched a barter deal with Transneft.

Yukos is unable to pay for transit fees in cash since its bank accounts are frozen.

"We are continuing to ship its crude since it has paid for our services in crude," he said, adding that Yukos gave Transneft 400,000 tons in lieu of shipping fees for October.

With output rising steadily over the past five years, shippers complain there is now a shortage of trunk pipelines to transport the crude to ports or abroad.

But Vainshtok said crude oil pipeline exports would rise by 6 percent in 2005 to 255 million tons (5.12 million bpd). The monopoly will export 240 million tons (4.81 million bpd) in 2004.

Vainshtok had said previously that Russia is 800,000 bpd short in pipeline capacity, but more recently has chided oil firms for failing to use new capacity expansions.

Transneft, which runs the world's largest pipeline system, has boosted capacity through its flagship Baltic port of Primorsk to 1 million bpd and this month launched shipments through the Ukrainian Black Sea port of Yuzhny.

Yuzhny is scheduled to ship 95,000 bpd this month, but traders have shunned the route as cargoes must struggle to pass through the congested Turkish straits.

Vainshtok said his ultimate aim was to create a pipeline system that would ship Russia's entire exports only via domestic ports, cutting a total of 90 million tons per year (1.8 million bpd) in transit shipments via Ukraine and the Baltic.

"I hope the government will take decisions on major projects before the year end," he said.

Projects on the drawing board include Primorsk's expansion to 1.25 million bpd, which Vainshtok said would take 16 months, and building the first stage of a $10 billion plus pipeline to the Pacific coast, which would take three and a half years.

He also said he expected Azerbaijan to cut its annual exports of 2.5 million tons via the Black Sea port of Novorossiisk to virtually zero next year after Baku launches a major new pipeline to Ceyhan on the Mediterranean.

Vainshtok also said U.S. demand for Russian crude is limited to a maximum 300,000 bpd refineries there can't process crude with higher sulfur content.

Russian exporters have shipped an average of 115,000 bpd to the United States since April 2002, according to the U.S. Energy Department

Yukos, LUKoil, TNK-BP and Sibneft have proposed a $4.5 billion pipeline to the Arctic to ship 3 million bpd of crude to the United States and Europe.

"North America isn't ready to take such large volumes of Russian oil," Vainshtok said, citing Marathon Oil's estimates.

"They are ready to take a blend of Urals and Siberian Light" to improve the quality of crude and cut the content of sulfur.

(Reuters, Bloomberg)

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