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Yukos and Transneft at odds about export outlets

29-January-03 Russian oil giant Yukos has sharpened its attacks against
the state-owned pipeline monopoly Transneft and government policy,
threatening to withhold production unless new export outlets are built.
While consuming countries look to Russia as an alternative to the Middle
East, conflicts have erupted within the country over attempts to control
its private oil interests.
Russia's richest oil baron has stepped up his revolt against the state
pipeline monopoly Transneft, suggesting that he may cut production
unless he can build privately owned export routes. Yukos CEO Mikhail
Khodorkovsky said Russia stands to lose up to 1 mm bpd in oil exports if
prices drop before the country builds new pipelines.

Some ****ysts have predicted that prices could soon slide below $ 20 per
barrel if the crisis over Iraq is resolved. Khodorkovsky argued that
such low-priced oil would be too unprofitable for Russia's
second-largest oil company to ship by rail. "This oil will simply remain
underground because I won't produce unprofitable crude," he said.
The concern about a future price plunge is Khodorkovsky’s latest tack
against Transneft and its dominance over the newly rich oil industry.
Yukos and other independent companies have been locked in a struggle to
develop new, privately run pipelines outside the Transneft network,
which has been at or near capacity for most of the past year.

The independents hope to shake off Transneft's grip over export volumes
and transit fees, which has backed up their oil and flooded the
low-priced domestic market. On 27 January, the Russian investment bank
Troika Dialog estimated that only 440,000 bpd of oil can bypass
Transneft, compared with Russia's daily output of some 8 mm barrels.
The issue is important at a time when Russia has risen to become the
world's second-biggest producer after Saudi Arabia and a potential
alternative if supplies are disrupted in the Middle East. But within
Russia, the conflict has turned into a clash of titanic forces, creating
splits with andwithin the government.

Khodorkovsky, with a reported net worth of $ 8 bn, often cites the need
to consult with attorneys before speaking. But in recent days, he has
cast caution aside, attacking both Transneft and government policy.
At the World Economic Forum in Davos, Switzerland, Khodorkovsky told
that Russia was slipping toward "a Saudi Arabian-style government" with
its excessive bureaucracy. Referring to Transneft, he said: "If the
state knows better where to ship crude, I don't oppose [it], if it
invests money and builds new pipelines. But don't tell me where to
invest my money. I have my own plans, and I'm ready to take risks."
Khodorkovsky added: "I thought the state acknowledged a long time ago
that the private sector is more effective than the public sector. But
the pipeline issue became a stumbling block."

The reason for the frustration is that Transneft has blocked Yukos and
other oil majors on several fronts at once. It has opposed a Yukos plan
to build an eastern Siberian oil pipeline to China that would be
privately operated. Instead, Transneft would build a $ 5 bn line to take
the oil from Angarsk to the Pacific port of Nakhodka for sales to Japan
and other countries.
In the west, Transneft has tried to block a private pipeline project for
exports through the arctic port of Murmansk by expanding a Baltic
pipeline system to Primorsk on the Gulf of Finland. The Energy Ministry
supported the $ 1 bn Transneft plan, paving the way for a government
decision by April.

Transneft officials have said that the project would take the oil that
would otherwise go to Murmansk. Transneft has also resisted all appeals
from the companies to ship oil through Latvia's port of Ventspils, which
offers one of the region's few outlets with unused capacity of 320,000
bpd. But Transneft has starved the port for months in hopes of winning
an interest in its export terminal. It was reported that the oil


But so far, Prime Minister Mikhail Kasyanov has backed Transneft,
telling on 10 January during a visit to Murmansk that "all oil pipelines
under construction in Russia would remain state property." Other reports
suggest even more bad news for the companies.

An industry newsletter reported that Natural Resources Minister Vitalii
Artyukhov has proposed a plan for developing east Siberian oil and gas
that includes "full state control over extraction and exports."
Artyukhov is said to have written to Putin, seeking a decree to impose
control over the resources and charging that private companies "have
been violating license terms. The plan may amount to nothing less than
re-nationalization."
While the government is unlikely to go that far, the proposal seems to
be another sign of the counteroffensive against privatisation and the
growing power of the oil companies. Firms like Yukos may be kept busy
fending off such threats while they seek to pull the government in the
direction of open markets. Given Russian President Vladimir Putin's past
reluctance to get involved in such battles, the result may be no gains
on either side.

Source: RFE/RL http://www.gasandoil.com/goc/company/cnr30882.htm