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. Last Updated: 07/27/2016

Tyumen Oil, Slavneft Join Petersburg Port Project

Tyumen Oil Co. and Slavneft have signed on to help build a $400 million oil-products export terminal which Surgutneftegaz is now building near St. Petersburg, according to a Surgut official.


But their participation is contingent upon the government granting the two firms permission to boost their crude oil exports to raise money for the construction -- exports currently capped under a system supported by the International Monetary Fund.


Tyumen and Slavneft, both located in western Siberia, signed a preliminary agreement with Surgut to share expenses if the government approves the increased crude exports, said Raisa Khotchinka, a spokeswoman for Surgut. She declined to say how much the companies have offered to contribute.


Surgut also is awaiting a decision on its request to export an additional 10 million metric tons of crude to pay for the $400 million port on Batereinaya Bay and for a $100 million pipeline connecting the port to Surgut's nearby refinery in Kirishi.


The shortage of export pipelines and ports in Russia limits the country's yearly crude oil exports to the West to 100 million tons, about one-third of total domestic production, according to Alexei Kokin, an analyst with Renaissance Capital. An additional 20 million tons is exported each year to other Commonwealth of Independent States countries.


Analysts say the IMF has opposed Surgut's export increase and asked Russia to uphold its annual export limit per company to roughly 23 percent of production.


The IMF, which has imposed numerous market and trade limits on Russia as a precondition for receiving billions of dollars in credits, wants to maintain the export limits to prevent the government from playing favorites with certain oil firms.


Surgut's decision to build a port specifically for oil products -- those that are refined from crude oil, including fuel oil, gasoline and diesel -- stems directly from the country's limited export potential.


Russian companies increasingly are turning to the products as a way to raise cash given that oil products fetch roughly double the $20-per-barrel price of crude oil, Kokin said.


Although prices for oil products are roughly equal in the West and in Russia, exports insure cash payment, while domestic buyers typically barter for the products, according to one Moscow analyst.


The oil products port on Batereinaya Bay will be Russia's first, giving Russian companies an alternative to hauling their oil products by rail to ports in the Baltic countries, where they have to pay high transit fees, Kokin said.


Surgutneftegaz is the only Russian oil company with a refinery located near a sea port, making it a logical financier of the Batereinaya project, Kokin said. The company has spent $750 million to upgrade its Kirishi refinery, located about 100 kilometers from the future Batereinaya port.


Surgut has not yet set a date to begin construction of the pipeline from Kirishi to Batereinaya, the company's spokeswoman said.