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. Last Updated: 07/27/2016

Baltic Pipeline System Not a Transneft Priority

Russia is delaying the start of construction of the $2.5 billion Baltic Pipeline System until next year but is drawing up plans to build two new pipelines in southern Russia, oil officials said Tuesday.

Russia had tentatively planned to launch the Baltic project, which envisions a new pipeline stretching from the oil fields of northern Russia to the Baltic port of Primorsky, in October but priorities have changed, Fuel and Energy Minister Viktor Kalyuzhny said at a pipeline conference in Moscow.

Those changes took place after national pipeline monopoly Transneft, which is responsible for building the pipeline, underwent a management shakeup last month when its chief Dmitry Savelyev was replaced by the former general director of LUKoil Western Siberia, Semyon Vainshtok.

Transneft has so far raised only $46.3 million for the project, new Transneft president Vainshtok said Tuesday. The funds came from a tariff of $1.43 per ton that Transneft imposed on exported oil in May.

Russia will instead focus this year on building a $200 million, 250-kilometer line in Dagestan and a $100 million line stretching 150 kilometers between the southern towns of Sukhodolnaya and Rodionovka, Kalyuzhny said.

The Dagestan route would allow Russia to bypass war-torn Chechnya while the other route would bypass Ukraine, which charges $2.30 per metric ton of oil that transits its territory on its way from the Caspian Sea to the southern Russian port of Novorossiisk.

Meanwhile, Deputy Fuel and Energy Minister Valery Garipov assured conference participants that Russia harbors 12 billion tons of proven crude reserves, more than enough oil to fill any new pipeline projects.

Russia is expected to produce about 304 million tons of oil in 1999, up 6 million tons from the early year forecast made by Russian authorities, he said. The increase in output became possible due to the growth in world oil prices and the consequent hike of capital expenditures by oil companies.

If the current market conditions prevail, Russia would be able to produce about 345 million tons of crude annually by 2005, Garipov said.

Global oil prices have been soaring this year, with European benchmark Brent crude opening at $23.16 per barrel Tuesday and Russian export blend Urals being offered at $22.06 per barrel at the same time.

At the start of the year both crudes traded at about $10 per barrel.

Also, the Fuel and Energy Ministry said Tuesday that it has drafted a government resolution to lift all taxes except those on profits on projects to explore and develop new oil fields or restart idle wells, which account for about 40 percent of the total number of wells in Russia.

Taxes will not be charged for a period of five years, according to the draft resolution that is expected to come into force this month.

Russia has a keen interest in developing its untapped oil fields with reserves potentially worth billions of dollars. About half the Khanty-Mansiisk and Yamalo-Nenets autonomous regions' potential reserves have not been fully explored and proved.

The Nenets autonomous region harbors potential crude deposits of 3 billion tons of which only 800 million tons have been proved, Garipov said.

The Yurubcheno-Tokhomskaya zone and the upper regions of the Yenisei river in Eastern Siberia may harbor up to 1 billion tons in crude reserves, but the deposits also demand additional exploration works, Garipov said.