Russian oil company LUKoil announced last week that it intends to cut oil product exports through Baltic ports and route them through a new oil terminal under construction on the Gulf of Finland.
LUKoil officials said they plan to cut all Baltic exports by 2004, when the $235 million refined oil products terminal in Vysotsk is expected to begin operations, thus allowing it to export all its oil products directly from Russian territory.
The news could spell trouble for the Latvian oil shipping firm Ventspils Nafta. LUKoil is one of the largest exporters of crude oil through the Ventspils Nafta's port in Ventspils.
The Russian oil giant is not, however, a major exporter of other oil products via Latvia.
But Ventspils Nafta officials brushed off the news.
"It is difficult to say how Ventspils Nafta's operations will be affected by plans that are to be carried out in two years," said company spokeswoman Gundega Varpa.
Last year the Russian oil company comprised 11 percent of all crude reloaded by Ventspils Nafta.
Haim Kogan, director of LUKoil's Baltic arm, said earlier this year that the company plans to export 1.2 million to 1.5 million tons of oil and up to 600,000 tons of oil products via Latvia.
In 2001, the company shipped nearly 3 million tons of crude through Latvian ports. Kogan explained the drop by saying LUKoil has started selling more products on the domestic Russian market.
Russia's No. 2 oil company, Yukos, with 13 percent accounted for the largest portion of oil products handled by Ventspils Nafta in 2001.
Uldis Osis, an oil industry consultant, said the effects of LUKoil's planned terminal would largely depend on the Russian government.
"If there is real free competition, and the Russian government stays out of it, Ventspils Nafta could have a good chance of attracting customers," Osis said.
"But in the past, the Russian government has played games with the tariffs on railway transports and pipelines in order to redirect oil to its own terminals."
"In the short term, Ventspils Nafta could suffer, and they are already suffering with quotas being substantially lower this year compared to last," Osis said. "But in the long run, I don't think Ventspils Nafta will suffer that badly if Russia and Kazakhstan keep their oil production up. The oil production in Kazakhstan is increasing year by year."
Concerns were even more muted in Estonia and Lithuania. Erik Sakkov, marketing director at the Port of Tallinn, said the volume of LUKoil products passing through the port is relatively insignificant but added almost every terminal there has LUKoil products.
"I think the whole case is being radically overstated. Let them (LUKoil) build new terminals, that is within their full rights.We (Tallinn Port) simply offer transit facilities and services. We have been competitive in the last years, and we are not going to give up our market position."
Sakkov also said the new LUKoil terminal might affect consumer prices.
"The flow of Russian oil is now growing, and there will be enough oil for everyone. In the long-term perspective, the new terminal will beat the price down and make the competition tougher which is good for the end-consumer," he said.
In Lithuania, representatives of the Mazeikiu Nafta oil company said they would not suffer from LUKoil's plans.
"LUKoil's plans will have absolutely no effect on Mazeikiu Nafta. They plan to transport only oil products, not crude, via their terminal. We export only crude via our Butinge terminal," said Tadas Augustauskas, spokesman of Mazeikiu Nafta.
Annually, the Lithuanian oil company buys a quarter of all crude oil it handles from LUKoil.
"We don't take oil products from LUKoil. We buy only crude from LUKoil," Augustauskas said.
He said LUKoil crude accounts for about 25 percent of all crude oil Mazeikiu Nafta receives.