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. Last Updated: 07/27/2016

State Bids for Baltic Pipeline Funding

Taking on yet another of its predecessors' flagship projects, the Russian government is pushing the ambitious $2.5 billion Baltic Oil Pipeline System, or BOPS, to connect Siberian and Far Northern oil fields with the planned port at Primorsk on the Gulf of Finland.

Trading House Transneft - a subsidiary of national oil pipelines operator Transneft - will cooperate with the European Bank for Reconstruction and Development in an attempt to raise some $400 million in financing needed to complete the initial stage of BOPS, officials said Wednesday.

The partners will make a presentation on the project to several foreign banks in London next Tuesday, said Vladimir Zhustarev, head of Transneft's strategic development department.

The EBRD has already given a preliminary agreement to support BOPS with a $150 million loan, according to a Transneft spokesman quoted by Reuters. The bank will also provide guarantees for an extra $100 million, which can be secured from different lenders. The final accord will be signed during the BOPS roadshow in London.

The first stages of the project will involve the construction of an oil export terminal at Primorsk, some 100 kilometers north of St. Petersburg, as well as building pipeline links to connect Primorsk with the existing Transneft pipeline network. The new links will be between Far North oil centers Kharyaga and Usa, and from Kirishi, south of St. Petersburg, to Primorsk.

The initial project is expected to handle about 12 million tons of crude a year, Zhustarev told this week's Moscow International Oil and Gas Conference.

BOPS has penciled in a $100 million budget for 1999. To fund this, the Federal Energy Commission in May introduced a levy of $1.43 per metric ton on oil exports valid until year's end.

The Fuel and Energy Ministry will also hold a meeting with oil companies to discuss the possible involvement of Russian crude oil players in the project.

A joint stock company is likely to be set up by September to operate BOPS under a government resolution on the creation of such an enterprise issued earlier this year, Zhustarev said.

Although the state will likely retain a controlling stake in the company, it plans to keep the door open for a year or so for potential investment partners willing to provide funds or assets, analysts said.

It will be run as a commercial venture once the pipeline is laid, making profits by undercutting competing oil terminals such as the Latvian port of Ventspils. The estimated costs for shipping oil through Primorsk are $3.50 a ton less than those via Ventspils.

The 2,718-kilometer pipeline project will require up to $2.5 billion in investments depending on its throughput capacity, analysts estimate.

Transneft attracted initial interest in the project from a wide range of domestic and international oil companies, including Komitek, Rosneft, Slavneft, Conoco, British Gas, Elf Aquitane, Finnish Neste and Total. LUKoil President Vagit Alekperov has also talked recently of taking a role in BOPS.

BOPS managers have already begun preliminary work on the project, with U.S. firm Gulf Interstate Engineering completing a project feasibility study in cooperation with Transneft.

Russian oil companies have committed to a maximum 25 million tons of crude for future BOPS pipeline space.

Kazakhstan has also sent a written commitment to Russian authorities offering to ship about 5 million tons of oil via BOPS, Zhustarev said.

Kazakhtransoil and recently created Orel Oil company will upgrade the existing pipeline linking Atyrau in Kazakhstan to the Russian city of Samara on the Volga River. The partners will increase throughput capacity by 50 percent from the current level of 10 million metric tons per year.

However, a potential bottleneck looms at Kirishi unless Transneft upgrades an existing pipeline.

Surgutneftegaz has rung the alarm bell about BOPS because its affiliated Kirishi refinery processed about 16 million metric tons of crude from the incoming pipeline last year, just 5 million tons short of the current nominal transshipment capacity of 21 million tons per year. Transneft therefore plans to expand the capacity of the existing 524-kilometer Yaroslavl-Kirishi pipeline to 27 million tons of annual throughput capacity, Zhustarev said. The company needs to upgrade 154 kilometers of pipe sections to boost the oil transshipment.

Meanwhile, Surgutneftegaz has launched construction of a $5 million rail terminal next to the Kirishi refinery that would allow it to transfer crude from the pipeline at the rate of 360 wagons a day.


Transport fees

Oil Export Transportation Charges

Route Charges (dollars per metric ton Free On Board)

Baltic Oil Pipeline System (annual capacity: 12 million metric tons)

Kharyaga-Primorsk 13.10

Surgut-Primorsk 12.50

Kharyaga-Porvoo 15.01

Surgut-Porvoo 14.41

Tengiz-Primorsk 16.95

Existing Transneft System

Surgut-Ventspils 16.01

Surgut-Odessa 16.46

Surgut-Novorossiisk 11.82

Feasibility Study for Kazakh Crude Export

Tengiz-Primorsk 17.48

Tengiz-Novorossiisk 17.00

Tengiz-Odessa 18.50

Tengiz-Ventspils 19.38

Tengiz-Novorossiisk (CPC) 25.00

Source: Gulf Interstate Engineering, Transneft