YUKOS set to take LUKoilÕs place in Baltics

  • 2001-02-15
  • Edvinas Butkus, Baltic Business Weekly
VILNIUS - With strong overproduction of crude oil in Russia and market prices falling, the only refinery in the Baltic states has increased its chances for stable and maybe even profitable operations this year.

The Lithuanian oil refinery Mazeikiu Nafta processed 554,400 tons of crude oil in January, up 25.5 percent year-on-year, the largest monthly volume in 18 months.

Meanwhile, a Moscow newspaper reported that YUKOS, RussiaÕs second-largest oil producer, might take the place of the Russian giant LUKoil in negotiations with Mazeikiu Nafta over long-term oil supplies to the Baltic country in the near future.

According to the report, with YUKOS oil output reaching record high levels (it posted a 17 percent year-on-year increase in oil production for December 2000), the company seems to be ready to accept any terms in order to sell its crude.

ÒA year and a half of talks between LUKoil and Lithuania has produced no results so far. If things go on this way, I do not rule out that we might start separate negotiations with Mazeikiu Nafta on long-term supplies to their oil refinery,Ó the newspaper quoted Nikolai Bychkov, the president of YUKOS Refining and Marketing, as saying.

Bychkov said in a news conference last week that YUKOS could deliver 4 million tons of oil to Mazeikiai per year and confirmed that Mazeikiu Nafta had made a proposal to this end to the Russian company.

The Lithuanian company expects to refine 7.1 million tons of oil at the Mazeikiai plant and ship 6 million tons of crude through the Butinge terminal this year.

In 2000, YUKOS sold the Mazeikiai refinery 1.6 million tons of oil and shipped another 1.4 million tons via the Butinge export/import terminal. Mazeikiu Nafta refined a total of 4.9 million tons of oil and exported 3.5 million tons through Butinge last year.

Bychkov did not comment on whether YUKOS would like to supply oil to Lithuania only as a seller of crude oil, or would like to participate in the marketing activities as well.

Bychkov also said YUKOS was bracing itself for a possible significant drop in the price of oil to perhaps $20 to $21 a barrel.

The company is also considering building storage facilities at its oil fields and at ports capable of holding 15 days worth of oil.

ÒA serious competitor to LUKoil may emerge on the Baltic market. With the talks on long-term cooperation between the company and the Lithuanian oil concern Mazeikiu Nafta being locked in stalemate, YUKOS has announced its readiness to replace LUKoil,Ó the Vedomosti newspaper wrote.

ÒSo far, not a single Russian company has openly threatened to encroach on LUKoilÕs priority position in its battle for the Baltic market,Ó Vedomosti noted.

However, LUKoil has played down the statement by YUKOS.

Ivan Paleychik, head of LUKoil Baltija, the local subsidiary of the Russian oil concern, was quoted as saying that YUKOSÕs plans would not affect either LUKoilÕs crude supplying operations or its petroleum product retail business, the Lithuanian daily newspaper Lietuvos Rytas reported. YUKOS, unlike LUKoil, did not have a sales network of its own in the Baltic states.

Paleychik said it was advantageous for YUKOS to deliver its crude to Lithuania through LUKoil because the latter company guaranteed payments. If Mazeikiu Nafta delays a payment for YUKOS crude, LUKoil pays for it, Lietuvos Rytas quoted him as saying.

Regarding the sharp increase in output at Mazeikiu Nafta in January, Paleychik said this was a Òtemporary thingÓ and it did not mean that Russian crude supplies would increase in the future.

ÒThe opposite could happen. LUKoil might not have any oil to spare, because it supplies oil first and foremost to those partners with whom it works on a contractual basis,Ó Paleychik was quoted as saying by the Russian news agency Interfax.

A senior executive of LUKoil said they would not negotiate with Mazeikiu Nafta unless the U.S. company Williams International, the operator of the Lithuanian oil concern, changed its attitude towards cooperation.

Yuri Storozhev, LUKoilÕs vice-president, spoke after a meeting between Lithuanian and Russian businesspeople held in Vilnius last week.

The talks between Mazeikiu Nafta and LUKoil on long-term supplies to Lithuania broke off a few months ago. Paleychik said the Russian company wanted a partnership based on an equal footing, whereas Mazeikiu Nafta sought to limit LUKoilÕs role to crude supplying.

Last May, the two companies signed a protocol of intent to set up joint ventures for oil supplies and marketing. The deal would guarantee Mazeikiu Nafta at least 6 million tons of crude per year.

Mazeikiu Nafta says that everything no longer depends on LUKoil nowadays.

ÒThe results for January prove that the plantÕs operations are stable and predict good results for this year. We bring raw materials in not only by pipelines, but also by railway this year. This shows that several crude suppliers are interested in supplying oil to Lithuania,Ó said Mazeikiu Nafta spokesman Tadas Augustauskas.

Top Surgutneftegaz officials said during a meeting last week in Vilnius that the Russian company would like to supply oil to Lithuania if the conditions were more favorable. At present, oil transit to Lithuania is more expensive than to Germany, Slovakia or Hungary, while export losses amount from 16 litas ($4) to 32 litas per ton, they said.

Surgutneftegaz wanted to have its crude oil refined at Mazeikiai and sell fuel in Kaliningrad, the Russian region bordering Lithuania, but the service costs were too high, the company officials said.