Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Transneft Pushes New Port on Pacific

Russia may boost Pacific oil sales earlier than expected by combining rail and pipeline supplies to a new port instead of rushing to build a $12 billion pipeline from scratch, state pipeline monopoly Transneft said Friday.

Transneft chief Semyon Vainshtok told reporters the new idea would help begin deliveries to Asian countries and the United States as early as 2007, if the government gave its approval soon.

"We recently met with railway executives and [the head of Russian Railways Gennady] Fadeyev took it seriously and asked his specialists to study whether the project was economically viable," Vainshtok said.

Transneft irked world oil markets earlier this month when it said its system of pipelines had hit an export capacity ceiling at 4 million barrels per day. That means Russia may be forced to curb its booming production if new pipelines are not urgently built.

Output in the world's second-largest crude-exporting nation has risen 50 percent since 1999 to 9 million bpd in April.

But analysts say further growth will largely depend on whether Russia manages to build its first pipeline to Asia or the Arctic coast.

Vainshtok has repeatedly said he prefers a pipeline to the Pacific, rather than to the Arctic port of Murmansk or to China, as that will allow Russia to sell oil to Japan, China and the United States and diversify sales away from Europe.

"It will also allow us to gradually develop and connect untapped Eastern Siberian resources to world markets," he said.

Initial plans for a Pacific pipeline consisted of a huge 4,000-kilometer link from Taishet, near Lake Baikal in Eastern Siberia, to the Pacific port of Nakhodka to ship between 1 million bpd and 2 million bpd of West and East Siberian crude.

The new idea proposes building the first 1,000-kilometer stretch from Taishet and pumping 200,000 bpd of oil to a rail hub for onward shipment to the new port in rail tanks along the Baikal-Amur Mainline railway.

The Soviet Union spent billions of dollars on the BAM over several decades, but it is almost unused as military freight traffic dried up after the collapse of communism in 1991.

Vainshtok said the pipeline plan would be a massive boost to the BAM, but added the government needed to encourage the project by cutting rail transport tariffs for oil on the route.

Transneft would gradually build three extra stretches of pipeline as crude shipments and East Siberian production grew, until the line fully linked Taishet and the Pacific port.

Vainshtok also said the government needs to introduce stricter controls on output to protect the nation's resources from depletion.

"The government needs to be tougher'' in controlling oil companies' production licenses, he said. Output may "automatically drop" in the future, as producers invest less in the fields, he said, citing some industry surveys.

Vainshtok's comments echoed those posted on the Federal Energy Agency's web site.

"Authorities should be ready to undertake very serious operating measures," agency chief Sergei Oganesyan said in the statement. "The largest companies exceed approved production rates by two to three times at some fields.''

(Reuters, Bloomberg)