Eastern increase

TNK-BP expects an increase in the price of oil supplied via ESPO

Despite the conservatism of Far Eastern consumers, domestic oil producers have already become fully accustomed to the local raw materials market. This year it is planned to supply 15-17 million tons of “black gold” to the Asia-Pacific region. “We are economically interested in this direction,” TNK-BP Vice President Jonathan Kollek said yesterday, but noted that Russian oil transported via the Eastern Siberia-Pacific Ocean (ESPO) pipeline is significantly underestimated - the potential increase could be more $1.5 per barrel. According to the top manager, the unfavorable situation for Russian exporters may change in the next six months.

Yesterday during the international conference “Oil Market 2010. Eastern Siberia - Pacific Ocean and export to Asia,” the vice president of TNK-BP, which supplies via the eastern pipeline, noted that, despite the high quality of ESPO oil and the significant costs of its production, this grade is undervalued by the market. The Russian product is “lighter and contains less sulfur than Dubai oil,” but is sold at a discount (on average about 50 cents) to hydrocarbons produced in the Persian Gulf. According to Mr. Kollek, during net back calculations it was found that ESPO oil is at least a dollar cheaper than its theoretical cost.

According to Dmitry Aleksandrov, head of the investment analysis department at Univer Management Company, Russian oil prices certainly have growth potential: “Thanks to ESPO, the spread between Urals and Brent has already decreased. In addition, the contracts are spot, so growth is possible even in the short term.” In his opinion, with an optimistic scenario for the export of Russian raw materials and a volume of supplies via the ESPO of about 17 million tons (approximately 126 million barrels), the total increase will reach $190 million. But the process of promoting Russian raw materials on the Far Eastern market will depend on the oil companies themselves. “In order for the demand for domestic oil in the Asia-Pacific region to increase, and therefore for its cost to increase, it is necessary, among other things, to take marketing steps. Including similar statements about the possibility of an increase in the price of raw materials over the coming months,” said Mr. Alexandrov.

The emphasis, Mr. Kollek believes, must be on quality. “It will take time for it to stabilize and for market participants to be convinced that this is for a long time,” the top manager explained, adding that this process will take three to six months. During this period, Asian consumers must get used to the new product on the market. And when the second stage of construction of the oil pipeline is completed, according to Mr. Kollek, ESPO oil could become a regional reference mixture.

By 2014, Russia's oil export capacity will exceed its production capacity , says TNK-BP Vice President Jonathan Kollek. According to him, the potential growth in oil production (if its rate remains at about 1.5%) by 2014 will lead to an increase in its production by about 40 million tons per year. However, the capacity of export oil pipelines will increase by 78 million tons per year by 2014. “This is good for oil companies because they have a choice between traditional supplies to the west and new supplies to the east,” he said. INTERFAX

Petr GELTISHCHEV