Gas Giants Pump Up Moscow Market

With Moscows gasoline prices higher than ever, British Petroleum and a joint venture of Tyumen Oil Co. and Texaco have announced plans to open gas stations throughout Moscow and the surrounding region.

"Its quite a profitable market," said Konstantin Reznikov, oil and gas analyst at Alfa Bank, about the local retail gasoline market. "Companies can earn very good profit margins."

Moscow has 700 gasoline stations that are worth $3 billion per year, according to the NIKoil brokerage.

The biggest player is the Moscow Oil Co., or MNK, which runs 250 stations and is owned by the Moscow government and the private British firm Sibir Energy, according to Kommersant newspaper. The bulk of the stations do not belong to franchises and are run by independent operators.

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British Petroleum announced plans last week to increase the number of stations it operates in Moscow from 25 to 120 by buying up and renovating existing stations, BP spokesman Boris Sukhoverkhov confirmed Monday.

Tyumen, or TNK, which already has 60 stations, reached a tentative agreement last week with U.S. oil company Texaco to build and operate another 60 stations in the Moscow region and also 30 stations around Kiev, Interfax reported.

They may encounter stiff competition from LUKoil, however. Gennady Krasovsky, oil and gas analyst for NIKoil, said the countrys No. 1 oil company plans to take over 200 gas stations in the Moscow region in the next few years. LUKoil now operates 15 stations.

The Russian-Belarussian oil company Slavneft also has a presence on the local retail gasoline market, running 50 stations.

Reznikov said BPs plans to renovate gasoline stations rather than build new ones represent a change in strategy for foreign and Russian oil companies.

Whereas building a new station costs $300,000, an existing station can be renovated for about half that, he said.

British Petroleum intends to invest $100 million in the project, and BP-controlled company Petrol Complex already is conducting negotiations with independent operators to buy their stations, Kommersant reported Saturday.

Reached Monday, Sukhoverkhov confirmed Kommersants report and declined further comment. He was quoted by the newspaper as saying that Petrol Complex will have trouble finding stations that meet the companys strict requirements. Each station must include a convenience store, cafe and car wash, and be equipped to service 50 cars per hour. He predicted it will be difficult to find gasoline stations located on the large plots of land that BP will require.

"The companys demands of the participants are too high," Sukhoverkhov was quoted as saying.

TNK and Texaco signed a memorandum Thursday stating their intention to form a joint venture with investments of $170 million, Interfax said. Gasoline would be sold under the TNK brand, and the joint venture would lease and manage convenience stores, car washes and quick oil change facilities under the Texaco Star Mart brand. The first service stations could be open by next summer.

Officials at TNK and Texaco could not be reached for comment.

Since January, TNK and Texaco have operated a joint venture to market Texaco-brand imported lubricants as well as lubricants produced at TNKs refinery in Ryazan.

TNKs plan to launch a network of gasoline stations around Kiev could be jeopardized by the possible loss of the Lisichansk oil refinery, or LiNOS, Vedomosti newspaper reported Monday. One of the refinerys commercial creditors, Agrokomplex, is demanding that the company be declared bankrupt.

"LiNOS is the most modern oil refinery in Ukraine," said Artur Somov, an oil and gas analyst at the Kiev brokerage Prospekt.

TNK acquired a 67.41 percent stake in the prize Ukrainian asset in July at a public auction. Under the terms of the auction, TNK was obliged to pay the refinerys debts to the state budget and Western banks, but not to commercial creditors. Somov estimates LiNOSs debt to commercial creditors totals $21.5 million, but he said TNK could probably restructure it.

TNK and BP could face tough competition from LUKoil because of its close relationship with the Moscow Oil Co., according to Krasovsky of NIKoil.

LUKoil president Vagit Alekperov said last week that LUKoil and Tatneft were completing a deal to take over a blocking stake of 25 percent in the Moscow Oil Refinery, an asset of Moscow Oil Co. LUKoil provides 62.5 percent of the refinerys oil, Tatneft 37 percent.

With its 250 stations, MNK controls 25 percent to 30 percent of the local retail market for gasoline and 65 percent of the wholesale market for refined petroleum products, Krasovsky said.

MNK has substantially lower transportation costs for its fuel because of the close proximity of its refinery. This makes it more competitive than TNK, whose Ryazan refinery is 120 kilometers away, the analyst said.

Gas prices have soared in recent months and high-octane gasoline now costs 9.5 rubles a liter in Moscow.