Latvian ports feel the Russian squeeze

Baltic ports, particularly Latvia's, are beginning to feel the pressure of Russia's coordinated effort to reroute millions of tons of crude oil exports to Russian ports.

According to the latest statistics, oil exports through the three Baltic nations have dropped 33 percent by the end of September, to 10.2 million tons. Ventspils is feeling the brunt of Moscow's policy, which has seen 38 percent less Russian oil pumped to its port compared with the same period last year. Exports at Butinge are down 19 percent year-on-year.

The steep decline comes almost one year after Russia opened its Primorsk export terminal on the Gulf of Finland, built exclusively to service oil tankers in lieu of Baltic ports. Many Russian companies have claimed that the Baltic ports are too expensive and transit fees are exorbitantly high.

Also, the perception of violations of Russian minorities' rights in the Baltics prodded the Kremlin to decrease its dependency on the three countries' ports and gave the political green light to the Primorsk terminal project. When the port finally opened last year, President Vladimir Putin attended the ceremonies.

The squeeze could get worse. Construction of a new port at Vysotsky, north of Primorsk along the gulf coastline, began this summer, and may begin loading tankers as early as fall 2003. Also, talk of expanding export facilities in Murmansk, from which Russia can most easily export crude to the hungry U.S. market, has gained momentum in recent weeks.

The pressure comes at a time when oil production in Russia is soaring. Output for the past three years has been rising on average of 7 percent to 8 percent per year, and figures for August – 7.84 million barrels per day – are the highest yet registered since crude oil extraction began to plummet over a decade ago.

Furthermore, Russia's oil exporters are taking full advantage of the buoyant market prices for crude and are pumping and shipping as much oil abroad as they can. By exporting Russian oil companies typically receive five times more for a barrel of crude than the domestic market can offer.

Falling throughput at Baltic ports is bound to have an impact on budget revenues. Though he did not specifically refer to crude oil, Ilmars Rimsevics, president of the Bank of Latvia, expressed concerns last week about meeting the consolidated national budget deficit of 3 percent of gross domestic product, as required by the Maastricht Treaty for all member and candidate states.

Exactly how much Latvia earns on the transportation of Russian crude is a highly guarded secret, but some economists have estimated that it comprises up to 10 percent of GDP.

However, the situation may not be as alarming as it sounds. Though crude oil exports at Baltic ports are falling, exports of Russian oil products, wheat, and coal are expected to rise.

Lithuania's Klaipedos Nafta, operator of the oil product terminal on the eastern coast of the Baltic Sea, saw throughput jump 26 percent to 5.16 million tons over the first nine months of this year. With Yukos, Russia's second largest oil company, expected to increase deliveries to the refinery in Mazeikiu, the trend should continue.

After registering a surplus harvest of some 10 million to 12 million tons, Russia is keen to export wheat to the West, particularly Canada. Half of these exports will leave Russian ports, while the other half will be shipped from ports in Muuga, Liepaja and Klaipeda.

Also, the Russian government is taking coordinated steps to facilitate coal exports. A coal terminal that will handle 5 million tons of coal annually is being proposed in the eastern part of Muuga. The terminal, which will be built with Russian money, is expected to receive its first ships in 2005. The Port of Tallinn will invest 600 million kroons (38.3 million euros) in infrastructure.