the RUSSIA oil & gas competitive intelligence report - Report Buyer

Russia Oil and Gas Competitive Intelligence Report 2010
Oil Transit
convoy heading towards Gaza, which drew international criticism. The attack does appear to have had an
impact on Turkey's view of the project, however, with the country's Aksam newspaper citing unnamed
energy ministry sources as saying that Turkey's international agreements with Israel, including Blue
Stream II, would now be reviewed.
The Baltic Region
Russian Prime Minister Vladimir Putin signed an order on December 1 2008 for the construction of a
second trunk line of the Baltic Pipeline System (BPS). The new line will boost Russia's oil export
capacity from the Baltic Sea and will provide an alternative export route to the Druzhba North pipeline
that runs from Russia through Belarus and Poland into Germany. Transneft proposed building the new
BPS trunkline (BPS-2) in January 2007, and the government approved the project in May 2007. The
existing BPS transports oil from European Russia to Primorsk on the Gulf of Finland. Construction was
completed in 2001 and current capacity is 1.5mn b/d. BPS-2 will extend 1,300km from the Bryansk
region to the port of Ust-Luga, near Primorsk, with a branch going to the Kirishi refinery. Oil should start
flowing in Q312 at an initial rate of 600,000b/d, with capacity to be raised subsequently to 1mn b/d. The
estimated cost is RUB120-130bn (US$4.3-4.7bn). Construction appears to have been delayed indefinitely
from the June 2009 start-up date.
Belarus
Historically Russian companies were exempt from Russian export duties on oil exports to Belarus. This
encouraged the companies to operate with so-called 'give-and-take' contracts, under which they would
export duty-free crude oil to Belarus, where they would process it for a fee at the country's refineries
before re-exporting it to Europe. In April 2007, however, as part of a general process of phasing out
energy subsidies to former satellite states, Russia imposed a limited export duty on crude oil exports to
Belarus and insisted that Belarus increase excise tax on oil products. This led to Russian companies
ceasing the 'give-and-take' contracts and companies that had participated, such as Lukoil, began selling oil
directly to the owner of the country's two refineries, Belneftekhim.
Russia briefly stopped supplying Belarusian refineries in January 2010 after the existing supply deal
expired without the two sides agreeing on a new framework. Under the expired agreement, Belarus had
benefited from preferential oil trading terms with its eastern neighbour, with its refineries paying only
around 36% of the standard Russian crude export tariff and then making a healthy profit exporting their
refined products to European customers at market prices. During earlier negotiations over the new oil
deal, Russia had said that it would provide tax-free oil to Belarus for domestic consumption, but that the
country should pay export duties for oil exported to Europe.
Belarus argued that this would go against an agreement on a customs union that the two countries signed
late in 2009 and responded by demanding higher transit fees for oil crossing its territory. This divergence
© Business Monitor International Ltd Page 18