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. Last Updated: 07/27/2016

Ministry Touts High-Price Oil to Asia

ReutersThe oil flowing in the eastern pipeline will be higher quality than Urals blend, the Industry and Energy Ministry says.
Oil flowing in the East Siberia Pacific Oil pipeline from 2009 should fetch higher prices than the current standard Urals blend, the Industry and Energy Ministry said Friday.

State oil pipeline monopoly Transneft plans to complete the pipeline -- which begins near Irkutsk and ends at Skovorodino, near the Chinese border -- by the end of next year. It will supply China and, potentially, other Asian markets.

Most of the oil will come from Rosneft's Vankor field, and crude from fields operated by TNK-BP and Surgutneftegaz will also be shipped through the pipeline.

"The quality of oil to be transported by the East Siberia Pacific Oil pipeline will be higher than that of Urals blend," the ministry said in a statement. "Registering it as a new blend will make it possible to sell it at a higher price."

The crude oil filling the pipeline is easier and cheaper to refine, as it has a lower sulfur content than that usually pumped westward. Blends with a lower sulfur content are commonly referred to as "sweet."

The government is still considering whether it should register a fifth blend for Russian oil, the ministry said, declining further comment.

Urals is a mixture of the sweeter Siberian Light blend, pumped in Western Siberia, and crude with a higher sulfur content from the Ural Mountains and the Volga River basin.

A Rosneft spokesman agreed that oil from Vankor would overtake Urals in quality, and said that it would be up to the market to set the price.

"Vankor oil has features similar to those of Siberian Light," said a Rosneft spokesman, who declined to be named in line with company policy. "Rosneft is counting on a higher price, but it will depend on specific contracts and demand on the markets to which it will be supplied."

TNK-BP spokesman Alexander Shadrin declined comment because the plan to seek higher prices came from the government and not the company. The company will send oil from its Verkhnechonskoye field to the pipeline, he said.

A spokesman for Surgutneftegaz would not comment Friday.

Attempts to put a higher price tag on Asian oil supplies were unlikely to scare off potential customers, said Simon Wardell, an oil analyst at Global Insight, an international consulting firm.

Asian-Pacific markets are largely supplied from the Middle East, where prices are based on the benchmark Dubai blend, which is close to that for Urals blend and below that for Brent, Wardell said.

Because they were built to receive Middle Eastern crude, Asian refineries can deal with lower qualities, but that could change over the next five to 10 years as new refineries appear and the existing refineries are upgraded, he said.

"It could be a good move," he said by telephone from London of the ministry's proposal to seek a higher price. "If it is of higher quality ... then it should command a higher price."

With Rosneft, TNK-BP and Surgutneftegaz leading the way, the pipeline should be filled almost to its capacity of 30 million tons per year when it opens in 2009, Transneft president Semyon Vainshtok said earlier this month.

Russia plans to extend the link to the Pacific coast as it develops new fields in eastern Siberia that are expected to come online after 2015, Deputy Industry and Energy Minister Andrei Dementyev said earlier this month.