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. Last Updated: 07/27/2016

Transneft Rules Out Pipeline From Surgut

VedomostiTransneft president Semyon Vainshtok
LONDON -- Transneft has ruled out a pipeline project from Siberia to the Barents Sea but could build a shorter and less costly link from northern Russia, the company's head said Tuesday.

Transneft president Semyon Vainshtok told reporters his company was talking to LUKoil about building a $6 billion, 500,000-barrel-per-day route from the country's northern fields to the Barents Sea.

That is half the price tag of a proposed route from Surgut in western Siberia's oil heartland to the northern port of Murmansk, Vainshtok said.

"The route to Murmansk has no future, but we are currently discussing with LUKoil a different project, Kharyaga-Indiga," Vainshtok said on the sidelines of a conference in London.

"It would allow more crude to be exported from the Timan-Pechora region, as well as free up our traditional export destinations [on the Black and Baltic Sea] for more oil from West Siberia," he said.

Russia's oil output has risen by more than 50 percent since 1999, and the world's No. 2 oil exporter is struggling with pipeline bottlenecks, prompting its majors to use more expensive alternative export routes, such as the railways, to boost shipments amid flat domestic demand.

Oil majors, including LUKoil and TNK-BP, have offered to build a new link from Siberia to Murmansk to ship 2 million bpd to European and U.S. markets. But Transneft has repeatedly criticized the project as too expensive and economically inefficient.

Timan-Pechora in Russia's north is a region with huge and untapped fields, mainly dominated by LUKoil, which has a strategic alliance with U.S. No. 3 oil firm ConocoPhillips. The two firms plan to produce up to 200,000 bpd in the region later this decade.

Kharyaga is a pipeline hub in Timan-Pechora. Indiga is an undeveloped coastal area 500 kilometers from Kharyaga.

Vainshtok said the new project would have to wait until Transneft builds its top-priority pipeline to the Pacific coast.

"To build it by the end of this decade may be a too optimistic forecast," he said.

The government gave in December a final go-ahead to the plan to construct a $11.5 billion, 1.6-million-bpd link, which would be the country's first pipeline to Asia with access to lucrative markets in Japan and the United States.

The project was chosen after long debates over the two proposed routes, to the Pacific coast and to China.

But Vainshtok said Tuesday that the plan to supply China with crude could still survive, as the monopoly was considering splitting the link into two sections, with 1 million bpd going to the Pacific and up to 600,000 bpd going to China.

Yukos was planning to build a similar pipeline to China earlier this decade, but the plan collapsed after the firm's main unit was renationalized last year in a move seen as Kremlin retribution for the political activities of Yukos' shareholders.

Russian Railways has since designed a plan under which rail supplies to China would rise to 600,000 bpd by the end of this decade, from around 200,000 bpd this year.

Vainshtok did not say whether resurrecting the idea of a pipeline meant the railway monopoly's project would be scrapped. He said the final feasibility study for the pipeline would be ready by May.