Mar. 11, 2005
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Italy's ERG and Shell to Develop LNG Terminal
Construction of the 8 bcm capacity LNG regasification terminal in Sicily is scheduled to begin in 2007 and be operational in 2010.

02.03.2005, 18:56

Roxar, TNK-BP Sign Deal
TNK-BP buys Roxar reservoir management and production optimization software for engineering R&D.;

02.03.2005, 18:45

ChevronTexaco Announces First Condensate
ChevronTexaco Corp. has announced first condensate production from the Sanha Field in Angola.

02.03.2005, 18:33

ExxonMobil Sells Sinopec Stake
ExxonMobil has completed the sale of its 3.7 percent stake in China Petroleum and Chemical Corporation(Sinopec.)

02.03.2005, 18:25

BJ Services Wins Cementing Contract
Marathon Petrolum Company has contracted with BJ Services for cementing services for a number of its wells offshore Norway.

02.03.2005, 18:19
2 March 2005 BJ Services

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Murmansk Booms on High Oil Prices

Ivetta Gerasimchuk

The railroads entering the port city of Murmansk are choked these days with oil tank cars carrying crude for export from Timano-Pechora in the Russian north and from West Siberia. Though rail is a much more expensive choice than pipeline shipment, producers have no option: Russia’s state owned pipeline system, Transneft, is at capacity and negotiations over building a new northern trunk pipeline are far from having reached a conclusion. Luckily, with oil prices at historic highs, the economics are right for shipping crude by rail to the seaport of Murmansk, even from as far away as Western Siberia.

This “klondike” to reap short-term profit is straining the oil reloading infrastructure in Murmansk. New build is happening in haste and Murmansk residents joke darkly about living in a powder keg that could explode as a result of even a minor accident. The only way out – to convince producers to invest strategically, rather than on a short-term basis, into development of oil reloading facilities at the Kola port junction. Quite conveniently, there are several factors that will have a beneficial impact on the development of Murmansk as a strategic Russian oil transshipment center, regardless of crude prices.

One Terminal Per Company at Least
Two years ago in the Murmansk region there was no oil reloading at all. According to Murmansk region first Deputy Governor Alexander Selin, 2 mln t of crude was reloaded via Murmansk in 2003, and, as a result of the performance for 2004, the figure will amount to 6 mln t. Moreover, more than 2 mln t of petroleum products will be transshipped via Murmansk in 2004 (see Diagram 1). In accordance with the Master Plan for the Development of Murmansk Transport Hub, by 2010 the turnover of bulk-oil goods exported via Murmansk will exceed 30 mln t (without taking into account 70 mln t of oil, if the Western Siberia – Murmansk Pipeline were constructed).
It comes naturally that, with high level of crude prices, a lot of companies are willing to enhance their positions in oil transshipment operations via Murmansk. Among those there are “oil heavyweights,” regional and local carriers. The most evident example is the Murmansk Fishery Port, shipping currently oil and petroleum products rather than fish (see Table). Furthermore, in Murmansk there is a lot of so called “hit-and-run” companies willing to snatch big money. According to Alexander Selin, some of them “come with buckets and canisters.” In the city, “newcomers” are actively involved in the process of property redistribution, including aquisitions of local companies.

At present, in Murmansk there are three roadstead reloading facilities (RRF): RRF 1 is owned by the Murmansk Shipping Co.; the owner of RRF 2 (currently not operating) is White Sea Service Company; RFF 3, also known as Belokamenka, is owned by Rosneft. In addition to those, local companies affiliated with the Russian Navy are building RFF 4.

A Temporary Thing Is the Most
Permanent One

The Belokamenka facility is an example of how to build a large capacity terminal within the shortest possible time. The terminal is an anchored single-hull and single-bottom tanker named Berge Pioneer, owned by Norway’s Bergesen company and freighted by Rosneft for a period up to 2024 with an option to purchase. Belokamenka is one of the biggest bulk-oil vessels in the world: it has a deadweight of 360,000 t, it is 340.5 m long and 65 m wide. However, it was built in 1980. According to a report by Norway’s Bellona non-governmental organization, pursuant to the new requirements adopted by the International Marine Organization after the wreck of the Prestige tanker, the Berge Pioneer is to be scrapped in 2006. Greenpeace has entered this tanker on the list of 50 ships to be continuously monitored as entities that are potentially hazardous to the environment.

Rosneft has said in a press release that it has no plans to scrap the Belokamenka because the rules of the International Maritime Organization apply to tankers only, while the Berge Pioneer has been rebuilt into a floating oil storage facility (in the UAE dockyards); hence, the requirements are not applicable here.

The Belokamenka floating oil terminal was officially put into operation on March 24, 2004. Five months later, the facility reloaded the millionth ton of crude delivered from the port of Arkhangelsk. According to Rosneft President Sergei Bogdanchikov, as early as in 2005, after the start of crude production at Prirazlomnoye and the launch of the Privodino terminal, Belokamenka will be reloading up to 11 mln t of crude per year.

The Belokamenka syndrome seems inherent to all existing Murmansk oil reloading facilities: temporary projects are commissioned to reduce construction periods, and once additional equipment is installed, it becomes possible to consider such facilities as “permanent” structures.

Money is, not surprisingly, pushing this agenda. In spite of growing oil transshipment volumes, tax proceeds to the Murmansk treasury have not yet increased. Thus, as Selin puts it: “Our task is to ensure that the growth of the oil transshipment volume will give to the Murmansk region a financial gain and, hence, social gain and environmental protection preventing any catastrophe.”

What’s the Cost of Safety?
Today on the Kola Peninsula two types of catastrophe are the most probable: an oil tank explosion caused by violation of fire and industrial safety rules and spills of crude and oil products. The Murmansk residents think that an explosion can occur at any moment, as it may be caused by various reasons, starting with electric wiring insulation fault, or non-observance of the ban on smoking near the oil storage tanks, ending with a man-made catastrophe. Apart from that, we should also remember that there are radioactive hazardous facilities located within the city limits.

In all fairness, we have to admit that environmental issues are the subject of discussion and efforts of the Murmansk authorities and “green” organizations of both Russia and Norway. Thus, the Norwegians are very concerned about increasing traffic of tankers shipping Russian oil along the northern coast of the country (see
Diagram 2). As a result of striving for a compromise, the oil and transport companies, operating in Russia’s northwest, purchase Norwegian and other foreign equipment, which complies with stricter environmental rules.

At the same time the conflict between economic and ecological interests is perceived clearly by both the Russian and Norwegian parties. In particular, in spite of the environmentalists’ protests neither Russian nor Norwegian authorities regard the Belokamenka as an environmental threat. According to the Dagens Naeringsliv newspaper, Bergesen will receive at least 50 mln Euros during the period of that the “to-be-scrapped” Belokamenka is leased to Rosneft.
One can hardly blame the Norwegians for applying “double standards” to Russia. In October 2004, the municipal government of the Norwegian town of Sor-Varanger (on the border with Russia, near Kirkenes) signed with Bergesen an agreement to build, as per the Murmansk prototype, an offshore loading terminal on the basis of Belokamenka’s sister tanker. The Norwegians are trying to control the growth of oil shipments from Russia by its participation, and Kirkenes, having offshore deep water, is planning to build a terminal there to reload the oil from the Arkhangelsk region onto large-capacity tankers. One can only hope that the competition between Murmansk and Kirkenes will bring both ports to a higher safety level in the future.

The Natural Choice
The Oil and Gas of Arctic Shelf-2004 International Conference held this autumn in Murmansk witnessed that the interest of Russian and foreign companies in the region is growing at a very great rate as over 500 delegates took part in the conference, instead of 300 expected. There are two reasons for this interest.
Firstly, Gazprom is eager to participate in the liquified natural gas (LNG) market and is intensifying its preparation to develop Shtokman and other fields on the Russian Arctic shelf. And it is Murmansk that has the best chances to become a chief Russian terminal for offshore projects in the north, similar to the role Stavanger or Bergen play in Norway,as the Murmansk companies such as FGUP Arktikmorneftegazrazvedka, Arctic Marine Engineering Geological Expeditions JSC, Sevmorneftegeofizika JSC, Kola Research Center of the Russian Academy of Science have gained many years of experience in drilling and in navigating of oil and gas equipment in the Barents Sea. The Murmansk specialists have high professional skills and participate in different projects, including those in the Arctic zone. In particular, Arktikneft’s procurement base is located in Murmansk, and specialists of Arktikneft and Arktikmorneftegazrazvedka go by air from Murmansk to the Kolguev Island to work in rotation in its oilfields.

Secondly, as compared with other ports in the Russian north, Murmansk is an ice free (year round), deepwater port located in the storm-protected Kola Bay. From Murmansk goes the shortest route for large-capacity tankers from Russia to Western European and U.S. markets. Export oil shipping from Murmansk is cost-effective, even if oil prices in the world market are low.

Pipe Goes Down the Drain?
“Black gold” is carried by small tankers from the continental Timano-Pechora and Priobskoye oilfileds to Murmansk to be reloaded to large-capacity tankers. And companies have great plans to increase sea export of the Timano-Pechora oil. In particular, at present the Krylov Central Research Institute is designing a permanent Varandei terminal with a capacity of 12 mln t per year, which is planned to be commissioned by 2007, says the institute’s senior researcher Yuri Mogutin. Moreover, it is via Murmansk (Belokamenka) that the oil from the Prirazlomnoye field in the Pechora Sea will be reloaded. Finally, to be reloaded to large-capacity tankers, oil is transported by rail to Murmansk. Another option suggests that oil from the Timano-Pechora province and Western Siberia is carried by rail to river and sea ports (Arkhangelsk, Onega and Vitino, one more port in the Murmansk region – at the White Sea), where it is shipped to small tankers with subsequent reloading to large-capacity vessels in Murmansk (see the map).

Companies seem to have all grounds to proceed with not only strategic planning in respect of Murmansk, but also with making investements into development of the permanent transport infrastructure in the region. However one can hardly blame the companies for their reluctance to invest long money into Murmansk oil transshipping. A decision has yet to be taken on the Northern pipeline, and one scenario for its construction could leave leave out Murmansk.

Nobody doubts that construction of a pipeline from Western Siberia to the Barents Sea coast is urgent. Firstly, it is the only cost effective supertanker route for getting Russian oil to the United States. Secondly, Russia is in control of a Barents Sea oil export route and can defend its interests. Such is not the case in, for example, the Danish straits and the Bosphorus where increasing rigid transit regulations are outside of Russian control.

The intrigue is well-known – privately owned producers, whose tank cars stand idle on the branch lines in Murmansk, have been lobbying for a Western Siberia-Murmansk pipeline for a long time and are ready to invest money in it. However, federal authorities want a state owned pipeline. Russia’s state-owned Transneft company, wishing to cut construction costs, refuses to lay a line to Murmansk and proposes to build it from Western Siberia to Indiga in the Nenets autonomous district. While a pipeline can transform Indiga into an oasis in the ice desert, Indiga is, however, a shallow-water port which does freeze over. Producers, not Transneft, would bear costs of getting around these problems.

The longer that Murmansk and Indiga engage in this tug-o-war, the longer the Murmansk situation will be explosive in the direct sense of the word. And the longer the Murmansk and federal budgets will suffer oil export tax losses, as it is more difficult to verify the volumes of reloaded oil than volumes of crude flowing in a pipeline.

Murmansk Transport Hub
Given such a murky situation, one thing does seem clear: oil flow exported via the port, will continue to grow in the future, and Kola Bay cannot be endlessly stacked with aging tankers. The city railroad infrastructure is failing to handle oil companies’ demands. According to the Association of Russian Commercial Ports, 600 crude and oil product tank cars stood idle on the branch lines in Murmansk.
So, two scenarios of the situation development are possible in the near future. The first one: the government and oil-gas and transport companies will jointly develop a plan to restructure the oil reloading facilities in Murmansk, which will provide for construction of high-tech superterminals, whose safe operation will be strictly monitored.

The second one: the same will be done by an order issued by the federal and local authorities, which, jointly with companies, have to eliminate the consequences of a catastrophe caused by a spill or an explosion of oil and petroleum products.

So far, there has been no catastrophe to force the hands of those with the power to change things. But this writer, did wonder a bit about the future as she watched a watched the sparks fly as an electrically powered suburban commuter train sped past a line of crude oil tank cars standing on the railway tracks to the Kola Bay.

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