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. Last Updated: 07/27/2016

Israel's Russian Oil Pipe on Track

LONDON -- The company running Israel's controversial Eilat-Ashkelon pipeline said Wednesday it was on track to pump Russian oil through it in June next year but had not entered into formal negotiations with any companies yet.

Andre Manor, the Eilat-Ashkelon Pipeline Co.'s deputy general manager of operations and commerce, said the company was currently reversing the pipeline's flow to move Russian crude from Ashkelon in the Mediterranean to Eilat in the Red Sea.

"We do not expect any delays unless there are unforeseen events," he said by telephone.

The pipeline would offer international oil companies access to Asian buyers who rely heavily on Middle East producers for imports and are seeking to reduce their dependence.

EAPC is focusing on recruiting Russian companies and has also been talking to Asian buyers, who have been asking technical questions about the project.

"We have not entered into formal negotiations. We have presented the project to two or three Russian companies and some Asian buyers," Manor said declining to name any of the companies.

The pipeline would initially pump far below its capacity of 1.2 million barrels per day.

"The total capacity is 60 million tons a year. At first it will be much lower than this. I try to be optimistic but I must be realistic. It will depend on demand," Manor said.

Although traders are watching to see how much Russian oil will move through the pipeline and compete with other crudes, it is not flow capacity that has attracted the most attention.

The pipeline was partly built by Iran and is alleged by traders to have handled Iraqi crude in a country that is the bitter enemy of Israel and Iran.

Iran is believed to still have a stake in the pipeline, which was built in 1968 in cooperation with the late shah before the 1979 Islamic Revolution.

Manor declined to discuss these sensitive points.

The pipeline has already been used to transport oil from neighboring Egypt, but shipping agents said the flow has fallen due to Cairo's objections to Israel's policies toward Palestinians.

Aside from offering Russian companies quicker access to the high-demand Asian market, EAPC hopes to sell the pipeline by offering storage facilities as well. "When the market is in contango [more expensive in future months] we think companies will benefit by storing their oil with us," he said.

If the pipeline takes off, it would lower the cost of sending crude to Asia and widen the arbitrage -- the level at which it is economical to ship crude to the region -- potentially changing trading patterns.