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. Last Updated: 07/27/2016

Oil Giant Wins Approval for Baltic Port

ST. PETERSBURG -- Federal and local governments have given oil giant Surgutneftegaz their backing for a new oil port on the Baltic Sea as part of a move to ease a bottleneck in Russia's exports of crude oil.

Under a May 17 federal government resolution, Surgutneftegaz has been given financial help in its plans to build an oil export port in Batareinaya Bay, 80 kilometers west of St. Petersburg off the island of Kronstadt.

The Leningrad regional government, where the port will be located, also gave its backing to the project in a protocol signed with Surgutneftegaz on June 22. Surgutneftegaz press spokeswoman Raisa Khodchenko said all international environmental studies had supported the feasibility of the project.

The backing will clear out obstacles for Surgutneftegaz, which is now seeking investors and partners for the $200 million project. Companies in negotiations include Eastern Oil and the Russian-Belorussian company Slavneft.

Designed for an annual capacity of 15 million tons, the Batareinaya Bay project would increase Russian oil export routes which are currently pumping close to their capacity of about 100 million tons of crude a year.

The new port would also give Russian oil companies alternative routes to expensive port facilities in the Baltic States.

"We face the necessity of either having to continue to cooperate with the three Baltic states or build our own on the Baltic Sea," said Alexei Vasiliev, head of the marketing department of the northwestern department of Surgutneftegaz.

As part of the agreement with the federal government, Surgutneftegaz will receive an increase of 10 million tons a year in its quota on Russia's crowded export pipelines.

This increased access to export markets will boost revenues and fund part of the project. But it does not sit well with Surgutneftegaz's main competitors who would also like more space on export routes.

"Since exports are more profitable than the domestic market, lots of companies are jockeying with each other for access to the export system," said Thane Gustafson, director for Russian energy at Cambridge Energy Research Associates.

Companies can be granted privileges for transporting oil for "state needs" through existing pipelines for lower tariffs, Gustafson said. Yet when one company pays less, the others usually wind up picking up the tab. In Russia, pipeline costs charged by Transneft currently amount to $24 per ton, roughly triple the worldwide level, he added.

In a recent press conference, Surgutneftegaz president Vladimir Bogdanov defended the increased quota. "This is not a privilege but a huge responsibility," he said, claiming the company had already invested $10 million for documentation and international ecological studies. "The state needs this project and will be very strict with us."

LUKoil and Yukos, two of Surgutneftegaz's major competitors, are prevented from joining the consortium building the port because of the requirement that participating companies carry no debt before the federal government.

The project could become a major focus in port politics, which are heating up as competing interest groups vie for new privileges and outlets. LUKoil is currently working on plans to develop a terminal in Estonia, while Finnish-based Neste hopes to extend the transportation network to its refinery in Porvoo.

Oil exported through the new port would come through pipelines from Kirishi, Samara, Omsk and Nizhny Novgorod which connect with the Kirishi oil refinery in the Leningrad Region.

Surgutneftegaz ranked third among major Russian oil companies in terms of exports during the first quarter of 1996, accounting for 20.8 percent of the export market.