Lukoil Varanday Tariff War Lands in Top Court

Lukoil’s Varanday oil loading terminal in Russia’s Pechora Sea

The Lukoil Varanday tariff war with Rosneft over Arctic oil transport from the Varandy loading terminal is headed to Russia’s supreme court.

The conflict began in 2018 when state-owned Rosneft complained to the Federal Anti-monopoly Service about tariffs that Lukoil levels on shipments from the Varandey terminal on the Pechora Sea coast.

According to Rosneft, the tariff level in Varandey is inflated and should be reduced by more than 50 percent. Lukoil disputed the claim, but it lost the case in lower courts. The case will now be taken to the Supreme Court, Russia’s business daily Kommersant reported.

The tariff war invoiving Lukoil Varanday focuses on the Titov and Trebs oil fields in the far northern Nenets Autonomous Okrug. Bashneft-Polyus, a company controlled by Rosneft, operates the fields, and their oil is exported through Lukoil’s Varandey terminal.

Lukoil owns a 24.9 percent stake in Bashneft-Polyus.

Over the years, Rosneft has become increasingly displeased with Lukoil, and its tariff on services at Varandey which sparked the business war.

Lukoil is charging $38 per ton of oil shipped from Varandey. But Rosneft wants the price reduced to only $18 per ton.Lukoil is reportedly only ready to offer a $10 per ton discount.

In a sign of protest, Rosneft reduced production in the Titov and Trebs fields by more than half, resulting in a significant drop in shipments at Varandey. In 2017, a total of 8.2 million tons of oil was handled at the terminal. In 2020, the volume was only 4.9 million tons, figures from the Russian Association of Seaports show.

Lukoil built the Varandey terminal in 2008; its annual capacity is 12 million tons. The terminal is located in shallow Arctic waters 21 kilometers from the coast. A fleet of ice-class tankers shuttle the oil to terminal facilities in Murmansk.

The Varandey terminal is connected by pipeline to several of Lukoil’s fields in the area, among them the Yuzhno-Khilchuyu field.