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. Last Updated: 07/27/2016

Russian Oil to Flow to Asia Via Israel

LONDON -- Russia and its neighbors may boost crude oil shipments through an Israeli pipeline, helping them compete against Persian Gulf nations for sales in Asia.

The 254-kilometer Eilat-Ashkelon pipeline, which has flowed from the Red Sea to the Mediterranean for more than 30 years, will reverse direction for a second time in November. A tanker is set to leave the Red Sea port of Eilat, bound for Asia, with oil sent from Ashkelon on the Mediterranean.

Russia wants to sell more oil in Asia, where demand is growing faster than in Europe, as China and Japan seek to reduce their dependence on Middle East exports. The pipeline gives oil companies an alternative to the longer route around Africa and lets them avoid restrictions in Egypt's Suez Canal.

"In the long run, this pipeline will be a viable method for Russian crude to be exported to Asia," said Saurabh Nakra, senior analyst at Drewry Shipping, a London-based consulting company.

How much crude will be exported across Israel will depend on the so-called arbitrage window, when Russian oil prices are low enough to attract Asian buyers. The pipeline may make Russian crude oil, which costs about four times as much to produce as Middle Eastern grades, more competitive by reducing transport distances and costs.

Very large crude carriers, or VLCCs, which can carry about 2 million barrels of oil, take 10 days to travel from the Red Sea to Asia compared with 30 to 35 days from the Mediterranean.

A tanker is scheduled to unload about 2 million barrels of Russian Urals and Kazakh Tengiz crude at Ashkelon in the second half of November, shipbrokers said.

Pumping the oil from Ashkelon to Eilat will take about four days, said Effie Milutin, commercial manager at Eilat-Ashkelon Pipeline Co., the pipe's operator. At Eilat, the oil will be put onto a VLCC and delivered to Asia, brokers said.

"The pipeline is a cost-effective alternative for oil companies to sell crude from the Mediterranean through the Red Sea to Asia,'' Milutin said. The pipeline can pump as much as 60 million tons per year, or 1.1 million barrels per day, he said.