BELARUS NEWS AND ANALYSIS

DATE:

19/05/2008

Putin forges ahead with BPS-2, avoids Belarus

Author: Kostis Geropoulos

Russian Prime Minister Vladimir Putin said on May 14 that the Baltic Pipeline System 2 (BPS-2), stretching from western Russia's Bryansk Region to the Leningrad Region, will run to the port of Ust-Luga, a town lying near the Baltic coast about 120 kilometres from St Petersburg, with a branch going to the Kirishi oil refinery. The new oil pipeline will bypass Belarus en route to Europe.

"Our basis point is that the schedule for (oil) production increase submitted by our oil companies to (oil pipeline operator) Transneft (envisages) extra production of 67.5 million tonnes by 2015," Putin was quoted as saying by the press, referring to oil to be pumped into BPS-2. He said that 30 million tonnes of crude oil and 18 to 20 million tonnes of oil products will be needed to fill BPS-2. "We are planning that here in Ust-Luga the volume of transit (of oil products) will be about 130 to 131 million tonnes, and in Primorsk 120 million tonnes. We are planning to achieve (this) in several years," Putin said. He said it might be Russia's largest facility of this kind.

Putin said Transneft had examined six routes before deciding in favour of Ust-Luga, the most environmentallyfriendly. BPS-2 would be part of the Baltic Pipeline System (BPS), an existing pipeline that pumps oil from western Siberia to the Primorsk port on the Gulf of Finland. The first stage of BPS, with a capacity of 12 million tonnes of oil annually and designed to transport oil from both Russia's oil-rich regions and Kazakhstan, was commissioned in 2001. Its current capacity is 75 million tonnes. Transneft has estimated the cost of the construction of its second stage to Ust-Luga at 78 billion rubles (USD 3.3 billion).

Putin also said Russia has proposed that its foreign partners use the BPS-2 and that they buy shares in BPS-2's terminal at Ust-Luga. "Some of our partners from other countries could also use this route and these possibilities to transship oil and oil products," Putin said.

Putin further added that Russia should grant tax breaks to oil companies developing fields in new regions to support falling output.

The BPS-2 project emerged during an oil conflict between Moscow and Minsk in January 2007 when Russian supplies to Europe via the Druzhba pipeline were disrupted after Belarus had refused to let Russian transit oil flows pass without Russia paying a transit duty. Putin said the new oil pipeline must increase oil exports and diversify delivery routes. "It will serve to enhance the energy security of our country and of our partners in Europe, and in general will make possible an increase in Russia's economic potential," the Russian premier said. He also said it would create additional jobs.

BPS-2 is the latest project by Russia to bypass problematic transit countries and get its natural resources directly to Western markets. This is part of an ongoing Russian policy that has existed since the breakup of the Soviet Union which is to, as far as possible, avoid going through former Soviet countries, Julian Lee, senior energy analyst at London's Centre for Global Energy Studies (CGES), told New Europe. Russia is also planning Nord Stream and South Stream to bypass Ukraine and get its gas directly to European consumers.

"The more transit countries you have on your way the more complicated the project. Russia has experienced this with Ukraine and Belarus," Tatiana Mitrova, who heads the Center for International Energy Market Studies at the Russian Academy of Sciences' Energy Research Institute, told New Europe. "All our problems with supplies, which are so much discussed in the media, all these problems actually are problems of transit states. Russia would never reduce supplies. It's not profitable for us because we earn money. The more we sell, the more we get." Once BPS-2 is completed, Russia is unlikely to fully suspend oil transit through Belarus.

"I think some (oil) will still go through Belarus. This is very much like the routing of the Baltic Pipeline System was used to put pressure on and eventually divert exports entirely away from Latvia," Lee said. "BPS-2 has a similar reason for existing with regard to Belarus. But I think this sort of onward delivery west of Belarus will favour exports through Belarus rather than sea born exports out of Ust-Luga."

But BPS-2 is likely to reduce Minsk's leverage over Russian oil exports - something that will benefit Europe in the long run. Belarus' authoritarian president Alexander Lukashenko has used the energy card to maintain his power for over a decade.

"It (Belarus) will lose a great deal of leverage if there is an alternative that could potentially reroute exports away from that territory. I think it does undermine whatever leverage they have."

Source:

http://www.neurope.eu/articles/86856.php

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