Ventspils pipeline likely to stay dry for long time

  • 2004-03-25
  • By TBT staff
RIGA - Any hopes that the appearance of a new government in Russia would help restore the flow of crude oil via pipeline to Latvia have been quickly dashed, with industry officials on both sides of the transport equation hinting that no deal was possible in the near future.

In an interview with the Russian language daily Bizness & Baltija last week, Lukoil CEO Vagit Alekperov said that Russia's private oil companies were unlikely to be interested in making a strategic investment in Ventspils Nafta, the largest oil terminal in the Baltics, while Russia's own export system on the Gulf of Finland was continuing to develop and expand.
Alekperov reiterated that any foreign investor interested in the Latvian port would have to make significant investments to improve the pipeline leading to Ventspils.
"Development of this export route is prevented by insufficient capacity in the Russian part of the pipeline, which would require over $100 million in renovation costs," said the Russian oilman.
This echoes earlier statements of Semyon Vainshtok, vice president of Transneft, Russia's pipeline monopoly and the most likely investor for Ventspils Nafta, who has said that the full-scale renewal of crude oil exports to Latvia would require either renovation or installation of some 2,000 kilometers of pipeline.
Alekperov admitted that there had been a time when Lukoil had been close to purchasing shares in Ventspils Nafta, but it eventually backed out for economic reasons.
"When calculating the return on investment we came up with a rate below the 15 percent threshold demanded by the company," he said.
Now, he suggested, it was important to consider the economics of transporting crude in light of Russia's new capacities.
"The most important thing is that oil transportation costs to Ventspils are higher than those to Russian ports Pirmorsk, Vysotsk and Arkhangelsk, because apart from reloading fees one also has to pay for oil transit through Belarus, Lithuania and Latvia," he said.
This claim, however, directly contradicts those made by Ventspils Mayor Aivars Lembergs and chairman of Ventspils Free Port. Speaking to reporters March 15, he stressed that Russia's oil exporters lose profits for every ton of crude they export through domestic ports.
"If a business approach were in place in Russia, oil would be transported via the Ventspils and Butinge [Lithuania] ports, and the remainder would be delivered via Russia's ports," he said.
Lembergs said data for January and February showed that the profit per ton of oil at Russia's Primorsk port on the Gulf of Finland was $7.8 lower than if it had been handled at Ventspils or Butinge. At the Novorossiisk port on the Black Sea, Russia's busiest sea terminal, the profit margin per ton of exported crude was even $12.3 lower than the equivalent in the Baltics.
He further explained that although oil exporting costs to Primorsk were lower, as was the handling tariff at Primorsk, the ship freight-rate cost was significantly higher: in Ventspils the figure is $9 per ton, while in Primorsk - $21 per ton.
Currently the Ventspils port only receives deliveries via railroad, though specialists claim this is two - three times more expansive than pipeline deliveries. But with world oil prices as high as they are, Ventspils port management has tried to mak the best of a bad situation and invested into rail-based infrastructure at the port in order to boost throughput.
In the meantime, port managers have been holding talks with potential investors, including several foreign entities (one U.S.-based). To foster the sale of a possible strategic stake, last year they created a company that focuses specifically on oil transport.