Prior to 1991, the Soviet Union was the world's largest oil exporter, with exports in excess of 12 million bbl/d at its peak. Russia, the largest republic in the U.S.S.R., accounted for nearly 90% of overall Soviet oil exports. Soviet oil production and exports declined throughout the 1980's, and in the aftermath of the breakup of the Soviet Union in 1991, Russia's net oil exports plummeted to just 3.16 million barrels per day (bbl/d) in 1994.
After Russia restructured its oil industry into a number of vertically-integrated, private oil companies, the country's oil production and exports began to increase again. In 2001, Russia's net oil exports rose for the seventh consecutive year, reaching 4.91 million bbl/d in net crude oil and oil product exports. Russia is now the world's second largest oil exporter, behind only Saudi Arabia. Russia's net oil exports are projected to increase again in 2002, to 5.17 million bbl/d, and then to 5.4 million bbl/d in 2003.
The majority of Russian oil is exported via terminals in the Baltic Sea (several ports) and Black Sea (mainly Novorossiisk, but also Tuapse and Odessa). Russian crude oil also is exported to Europe via the 1.2-million bbl/d capacity Druzhba pipeline. However, as Russian oil producers continue to increase production, these export routes have been running at or near capacity. In addition, Black Sea exports must pass through the increasingly crowded Bosporus Straits, raising environmental concerns about an oil spill in the Straits. As a result, Russian oil exporters are looking for alternative export routes.
The Baltik Pipeline System, which began operations in December 2001, allows Russia to export oil directly from its Baltic Sea port of Primorsk rather than shipping it through Estonia, Latvia or Lithuania. In addition, the integration of the Druzhba and Adria pipelines in Croatia gives Russian oil exporters direct access to the Adriatic Sea, where tankers can be loaded at the deep water port of Omisalj.
Despite being restricted to exporting 30% of their production by a long-standing quota arrangement, Russia's oil producers have been seeking to maximize their exports by whatever means possible, constraints on export capacity notwithstanding. The discrepancy between export and domestic prices (Russian prices are typically just over half of the world market price), plus the guarantee of hard currency payment for oil exports, combine to make a compelling argument for increased sales abroad.
Thus, Russian oil companies are attempting to challenge Transneft's monopoly position on export pipelines by developing pipeline projects of their own. Yukos, one of the country's largest oil companies, is negotiating with the Chinese government to build an oil pipeline to China, and the international consortiums that are developing oil projects Sakhalin Island are considering building pipelines to China and Japan to supply oil to customers there. A deepwater oil terminal at Murmansk that would enable Russian oil exporters to ship their oil to the USA also has been proposed. Huge investments in infrastructure will be needed to bring these pipelines and terminals online.
,Crude oil exports are a key source of income for Russia, as revenues from exports provide approximately 25% of the Russian government's income. It is estimated that every $1-per-barrel price increase in the price of Russia's Urals Blend benchmark brings in almost $1 billion in extra earnings. On the other hand, a decrease in oil prices adversely impact Russia's budget. While Russia experienced a windfall in extra oil revenues in 1999 and 2000 when world oil prices were relatively high, the drop in world oil prices in late 2001 cut into Russia's revenue intake.
Although Russia is not a member of the OPEC, the Russian government agreed to a 150,000 bbl/d oil export cut in the first quarter of 2002, following suit with other non-OPEC members such as Mexico, Oman, Norway and Angola.
Despite the Russian government's pledged oil output cut, Russian oil exports actually increased in the first quarter of 2002. Government-imposed export tariffs caused a glut of crude on the Russian market, causing a price collapse and leading to calls from Russian oil companies to lift the export ceiling. Russian oil companies then sent their crude to Russian refineries, which led to an increase in oil product exports and a surplus of refined products on the market. In order to reduce the amount of crude on the market, some Russian officials called for the creation of a strategic Russian oil reserve.
In March 2002, over the opposition of domestic oil companies, the Russian government announced that the country would continue to reduce its oil exports by 150,000 bbl/d. Regardless, Russian oil companies increased their crude oil exports as world oil prices climbed, and Russia formally abandoned its stated export cuts as of July 1, 2002.
,Since 1991, Russian oil exporters increasingly have shifted their focus from the countries of the Commonwealth of Independent States (CIS) and central Europe to Western Europe. As countries in the former Soviet Union have racked up oil debts, Russian oil exporters have targeted customers in Western Europe, where demand is strong, supply is limited, and payment is in cash.
The majority of Russian oil exports are sent to countries in Western Europe, such as the UK, France, Italy, Germany and Spain. The share of net exports to countries outside the former Soviet Union rose from 53% in 1992 to 86% in 2001 as the share of net exports to former Eastern Bloc and Soviet Union countries decreased. Russia's net exports outside the CIS totaled approximately 4.23 million bbl/d in 2001, while only about 680,000 bbl/d was exported to CIS countries.
An October 2000 energy summit between the European Union (EU) and Russia, whereby the EU agreed to help Russia develop its oil and natural gas reserves in return for a long-term energy supply commitment, promises to boost Russia's oil exports. With pipeline projects such as the Baltic Pipeline System, Russia hopes to increase oil exports to Europe to over 5 million bbl/d in the future.
Russian oil exports to Asia are set to increase in the next decade with the development of oilfields in East Siberia and on Sakhalin Island, as well as the integration of the Druzhba and Adria pipelines. In addition, the proposed Murmansk oil terminal and connecting trunk pipeline to West Siberia may give Russia the ability to export significant quantities of oil to the United States. However, the transportation and production costs of delivering Russian oil to the U.S. are higher than those of Middle East producers, making it unlikely that Russian oil will replace Middle East oil on the U.S. market.
,Russia is maneuvering to become a major player in the exploration, development, and export of oil from the Caspian Sea region. Typically, about 300,000 bbl/d of oil from the Caspian region (mainly Kazakhstan and Azerbaijan) is exported outside the CIS through Russian oil pipelines controlled by Transneft. With Caspian Sea oil exports set to rise in coming years, Transneft is keen to attract that additional transit oil through its pipeline system in order to reap extra tariff revenues. Caspian regional oil exporters have a number of export options, but Russia is hoping to become the main transit route.
Kazakhstan exported about 270,000 bbl/d through Russia in 2001. The majority of this oil was sent through the Atyrau-Samara pipeline, and then via the Transneft system before being exported via the Druzhba pipeline or via the Baltic Sea terminals. Russia recently completed an expansion of the Atyrau-Samara pipeline that increased its capacity to 300,000 bbl/d, and Russia already has allocated a 100,000 bbl/d quota of Kazakh oil for the Baltic Pipeline System.
Kazakhstan also sent oil in 2001 via Russia's Caspian Sea port of Makhachkala, which is linked to the 100,000-bbl/d-capacity pipeline from Baku that terminates at Russia's Black Sea port of Novorossiisk. However, the Caspian Pipeline Consortium, which loaded its first tanker in October 2001, has become Kazakhstan's main export route transiting Russia. With an initial capacity of 564,000 bbl/d, the CPC pipeline exported an average of over 200,000 bbl/d of Kazakh oil via Russia in the final two months of 2001, and the CPC is expected to pipe an average of about 400,000 bbl/d of Kazakh oil in 2002.
In December 2001, Kazakhstan and Russian signed an inter-governmental agreement that makes Kazakhstan eligible to transport up to 350,000 bbl/d through the Russian pipeline system in 2002. The agreement covers the Transneft system, which includes the BPS, the Atyrau-Samara pipeline, the Baku-Novorossiisk pipeline, and the Makhachkala port, but it does not include the CPC pipeline. Under the agreement, Kazakhstan can send up to 300,000 bbl/d through the Atyrau-Samara pipeline and 50,000 bbl/d via Makhachakala and the Baku-Novorossiisk pipeline. Overall, Kazakh oil exports transiting Russia could reach 750,000 bbl/d in 2002.
Azerbaijan exports a small amount of oil through Russia via the Baku-Novorossiisk pipeline. In 1996, Russia and Azerbaijan signed an intergovernmental agreement on the transit of Azeri oil through Russia, with Azerbaijan committing itself to exporting a portion of its "early oil" from the Caspian Sea via Russia. However, the pipeline has been plagued with problems, from the war in Chechnya to Azerbaijan's inability to fill it. Azerbaijan committed itself to throughput in 2000 of 46,000 bbl/d, but in the end only transported around 10,000 bbl/d via Russia.
In addition, the Azerbaijan International Operating Company (AIOC), the international consortium which is developing Azerbaijan's most promising fields in the Caspian Sea, has preferred to bypass Russia, piping its early oil via the Baku-Supsa western route through Georgia instead. AIOC has has been reluctant to pipe its oil to Novorossiisk because it is longer and more expensive than the Baku-Supsa route, and also because the Baku-Novorossiisk route mixes AIOC crude with other crude oils while in transit to the oil terminal, reducing its value. Also, the tariff for Azeri oil transportation through the Baku-Novorossiisk pipeline is over seven times higher than the tariff of the Baku-Supsa route.
Nevertheless, the State Oil Company of the Azerbaijani Republic (SOCAR) increased its exports via the Baku-Novorossiisk pipeline in 2001 to 46,000 bbl/d, and the company plans to maintain that rate in 2002. Russia says that the capacity on the Baku-Novorossiisk pipeline can be increased to 300,000 bbl/d, but SOCAR will not have sufficient volumes to fill the pipeline, even at its present capacity, in the next few years.
Turkmenistan is looking to increase its oil exports via the Makhachkala port and then through the port's link to the Baku-Novorossiisk pipeline. Turkmenistan arranged with Transneft to export up to 50,000 bbl/d via the Baku-Novorossiisk pipeline in 2000, but Transneft determined that the Turkmen oil was not fit for the pipeline and refused to load it in the pipeline, leaving tankers loaded with Turkmen oil standing in port. Turkmenistan eventually accepted rail transportation of its oil.
According to information from the Russian Ministry of Energy, Turkmenistan transited only 90 bbl/d through Russia in 2001, against planned volumes of 9,000 bbl/d. Turkmenistan is planning to export about 20,000 bbl/d via Makhachkala and the Baku-Novorossiisk pipeline in 2002.
Author: EIA
