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. Last Updated: 07/27/2016

Russian Crude to Get Mediterranean Outlet

ZAGREB, Croatia -- The representatives of six East European countries signed a pipeline agreement Monday to connect rich Russian oil fields with the Adriatic Sea.

The integration of the Druzhba and Adria pipelines, which meet in Hungary, aims to enable Russia to increase exports of its crude to the Mediterranean and other world markets through the Croatian deep-sea port of Omisalj.

The project involves a gradual increase of exports from 5 million tons to 15 million tons of crude per year (100,000 to 300,000 barrels per day).

"The Druzhba-Adria pipeline will represent an oil artery for this part of Europe, and it has the utmost economic and geostrategic importance for Croatia," said Croatian Prime Minister Ivica Racan, who attended the ceremony.

Overall costs of the project, which includes Croatia, Russia, Belarus, Ukraine, Slovakia and Hungary, are estimated at $300 million, and its completion is planned for the end of 2003.

The agreement was signed for a period of 10 years with a planned extension for another decade. The 3,200-kilometer pipeline starts in the Russian city of Samara and ends in the northern Adriatic port of Omisalj in Croatia.

Oil companies Yukos and Tyumen have provided guarantees to transport 5 million tons of oil -- 2.5 million tons each -- through the integrated pipeline per year.

Yukos chief financial officer Bruce Misamore said crude exports to the United States would remain a priority growth area for the company. Yukos has been sending large volumes of crude every month to the United States this year but says the profitability of the shipments would be greatly improved by better infrastructure.

"Projects such as the Adria pipeline and the Murmansk port -- once they are up and running -- have the potential to make Russia a truly world-class [energy] player," Misamore said last week.

Adam Landes, oil and gas analyst with Renaissance Capital in London, said any plan to widen the reach of Russian oil was welcome even though Omisalj's capacity of 300,000 barrels per day would be small against a backdrop of total Russian exports of over 3 million barrels per day.

"Europe is an oversupplied market; the United States is not," he said. "The Adria project offers incremental opportunities for arbitrage shipments of Russian crude to the United States."

Janaf, the Croatian part of the pipeline network, has been mostly out of use since the 1991-95 wars in the former Yugoslavia. It now plans to boost its revenues by $30 million dollars in the first phase of the project from 2004 to 2006.

Janaf's installed transport capacity is 20 million tons per year while its projected capacity is almost 35 million tons. This year it will transfer only 6.1 million tons of oil.