Transneft seeking alternative routes for Chinese crude supplies

Russian oil giant Transneft is eyeing Mongolia as a possible transit shortcut for crude oil supplies to China. The current Kazakhstan route could lose Russia up to $2.6 billion a year in export levy.

Transneft is looking for new efficient ways to transport additional volumes of Russian crude oil to China, company spokesman Igor Demin told. The agreement to ramp up crude exports was signed by Rosneft CEO Igor Sechin and CNPC President Zhou Jiping on 22 March.

Sechin said the annual volume of crude oil supplies could peak at 31 million tonnes, and that deliveries could take three routes. At present, the East Siberia-Pacific Ocean (ESPO) pipeline processes a total of 36 million tonnes of crude a year, including 20 million tonnes destined for China (15 million tonnes along the Skovorodino-Mohe branch and the remaining part via a branch leading up to the sea port of Kozmino). The Skovorodino-Mohe throughput capacity is set to be expanded by another 15 million tonnes a year in the near future; the Kozmino branch could be similarly boosted to take an extra 15 million tonnes a year. Russian Energy Minister Alexander Novak says Transneft might start supplying 7 million tonnes of crude a year to China via the Atasu-Alashankou pipeline from 2014 under a swap scheme with Kazakhstan.

Demin says the new agreement does not mention the Kazakhstan route. “It does stress the necessity of looking into alternative ways to deliver [crude] to refineries in Western China,” he notes, adding that the Skovorodino-Mohe pipeline remains a priority but that other routes might also crop up.

According to Demin, choosing the Kazakhstan route would rob Russia of the crude export tax: “Kazakhstan so far has been merely talking about the possibility of transferring export tax to the Russian budget as applied to crude swap deals.” With 7 million tonnes at stake, Russia could incur losses in the region of 80 billion roubles (some $2.6 billion), he says. The Russian export tax on crude stood at $420.6 per tonne in March 2013.

DLA Piper counsel Marina Lyakisheva says the export tax is not charged on commodities being sold within the Customs Union (which unites Belarus, Russia and Kazakhstan), but that it has to be paid if the commodity in question is then being re-exported to a third country. “It is largely a matter of trust [between the Union members],” she says.

Transneft will also look at delivering crude to Western China by rail via Mongolia, Demin says. Until 2007, crude oil intended for China would be loaded from the pipeline into railway tanks at Meget railway station in Russia’s Irkutsk Region, he says. Of the overall 7 million tonnes, 2 million would be sent to Daqing in China via the Zabaykalsk- Manzhouli border crossing, while the remaining 5 million tonnes would be channeled via the Naushki station on the Mongolian border.

Mongolia would discount the transit charges owing to the insufficient loading of that route, says Demin.

Infranews news agency Director General Alexei Bezborodov says the Mongolian route from Meget is currently being used to just 20% of its overall capacity, which means Mongolia would be happy to offer a discount.

Demin says another Russian oil giant, Rosneft, once planned to supply crude oil to China via Kazakhstan from its Samotlor field, which is situated much closer to the Kazakhstan border than Meget. On the other hand, the current decline in pipeline loads may cause Transneft to hike transit rates along its pipelines by up to 25%, he notes.

These calculations are only just approximate, Demin warns. Grigory Birg, co-director of the Investcafe research department, believes Transneft could lose about 13 billion roubles annually (in 2012 prices) from transporting crude along its own pipelines.

No deadline has been set for deciding on a possible alternative route, Demin told Vedovosti. He declined to comment on the viability of the Mongolian route.

Source: rbth.asia

Share this post