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. Last Updated: 07/27/2016

Top Oil Companies Find New Way to Up Exports

Four oil majors urged the government Wednesday to use spare capacity along the Druzhba pipeline to Central Europe to boost exports by 300,000 barrels per day and avoid a domestic oil glut.

Yukos, Surgutneftegaz, Tyumen Oil Co., or TNK, and Sibneft, who produce around half of Russia's oil, said they knew how to increase exports through the pipeline very quickly without big investments.


Deputy Prime Minister Viktor Khristenko

They said the move could help them maintain their ambitious targets for output growth this year, but added more export capacity would be needed in the future.

Oil production is growing for the fifth straight year. "The boost of export supplies is feasible on the Druzhba pipeline to Poland, Germany, the Czech Republic, Slovakia, Hungary, Ukraine and Belarus," the four firms said in a letter to Deputy Prime Minister Viktor Khristenko.

Earlier this month, oil majors asked the government to boost exports by persuading state pipeline monopoly Transneft to reopen a pipeline to the Latvian port of Ventspils. Transneft has slashed oil shipments to Ventspils to zero this month from around 350,000 bpd at the beginning of 2002, saying oil firms preferred other routes to reach world markets.

Market players say the move is instead designed to put pressure on the port's owners to sell Transneft a stake in the terminal, once the biggest outlet for Russia's crude on its way to northern Europe, at a bargain basement price.

Ventspils is believed to be the only easy option for Russia to quickly boost exports -- currently running at 4 million bpd.

Other pipelines are pumping at capacity and bottlenecks loom at its main oil ports with total output at a 10-year high of 8 million bpd.

However, after Khristenko told oil firms last week he opposed the plan to reopen a pipeline to Ventspils, they quickly discovered spare capacity on the Druzhba pipeline.

They said a pipeline from western Siberia to the Black Sea port of Tuapse via central Russia, pumping only Siberian light crude of much better quality than Russia's main Urals export blend, was working below its capacity.

The oil firms said it could work at capacity if Transneft agreed to pump Urals blend via this pipeline toward central Russia and then Druzhba. They acknowledged that state oil firm Rosneft, pumping Siberian light toward Tuapse, would be the obvious loser as its crude oil quality would deteriorate, but added that the state could gain an additional $800 million from higher exports.