№10 October 2011Table of contents Issue Archive
№10 October 2011Table of contents Issue Archive
№ 9 (September 2011)
Exports of crude oil and oil-products are the principal item of commodity shipments from Russia to international markets. Throughout its modern history, this country has been a major oil exporter, accounting for 12-14 percent of the international oil market. Against the background of stable domestic consumption, the net exports of crude and oil products have shown a steady growing trend due to increased domestic production.
By Andrei Korzhubayev, Leonty Eder, Irina Filimonova
Given the higher international oil prices and increases in shipment volumes over the past 10 years, Russian oil companies’ export earnings have grown nearly sixfold, with over 90 percent of revenue generated by deliveries to non-CIS countries (Fig. 2). The oil products export structure is mostly made up of the medium and heavy distillates – furnace oil and diesel oil, both mostly used for downstream processing in the receiving countries. This has led to a situation in which the average price of a basket of oil-product exports does not exceed the price of crude oil.
Over the past ten years, one of the distinctive features of Russia’s export policies in the field of crude and oil-product exports has been a reduction in the volume of transit shipments through its neighboring states. There has also been a considerable reduction in deliveries moving through sea terminals in the Baltic States and CIS countries and through the Druzhba gas pipeline. Export deliveries of liquid hydrocarbons have stopped completely through the ports of Ventspils (Latvia), Butinge (Lithuania), and Odessa (Ukraine) and through the Mazeikiai Refinery (Lithuania). The volumes of transshipment via the Port of Yuzhny (Ukraine) dropped three-fold in 2010, while, in 2011, not a single shipment of Russian crude was made from that port.
Over the same period, a number of alternative export routes have been set up making it possible to eliminate transit primarily via CIS and East European countries, and to access the main financially reliable markets of Western Europe, North America, and the Asia-Pacific region directly (Table 1).
The long-term objective in diversifying energy product exports from Russia is to significantly increase deliveries to Asian and Pacific Rim markets, primarily to China. In the early 2000s, there was a steady build-up of oil shipments to the People’s Republic by railway. Since 2008, deliveries of liquid hydrocarbons (in the reverse mode, in the early stages of the operation) have been taking place using the ESPO pipeline and rail to the Port of Kozmino (Primorye Territory). Commercial pipeline deliveries of oil started to China in January 2011.
In this favorable market, the proceeds from crude exports have grown in the space of ten years – more than fivefold from $25 billion to $135 billion, with the oil product exports growing sevenfold from $10 billion to $70 billion. As a result, the share of earnings from export deliveries of crude oil and oil products, in Russia’s total export volume, grew from 35 percent in 2000 to 52 percent in 2010. It is this favorable foreign trade environment in the international oil market that acts as one of the prime factors in securing Russia’s high surplus balance of trade and in building its fast-growing foreign currency reserves (Fig. 3), in terms of which Russia today ranks the world’s number three, following China and Japan.
The Regional Exports Structure
Today, more than 80 percent (83 percent or 183 million tons, in 2010) of Russia’s crude oil exports is shipped to the Atlantic market, primarily, to Europe. At present, less than 20 percent (17 percent or 38 million tons) of its export crude is shipped to the Pacific market, mainly, to China (Table 2).
The Atlantic market remains the principal destination for Russian crude and oil-product exports. Technologically, deliveries to that market already have reached saturation point and have stopped growing over the past few years. The demand for oil in Europe, which accounts for nearly 80 percent of Russia’s oil exports, has mostly remained stagnant, while at the same time decreasing in a number of countries, primarily, Germany, Great Britain, Italy, France, the Netherlands and Belgium. Russia faces its toughest competition from Middle East and North African suppliers shipping to Southern European markets, and from Canadian, West African, and South American suppliers shipping to the U.S. Atlantic Coast. Russia’s prospects for its own share of the Atlantic market will mostly be linked to the continued decrease in production in the North Sea, something that should allow Russia to increase its deliveries to Northern and Western Europe, primarily through Rotterdam. Russia will also have to try and maintain its direct pipeline shipments to refineries in Poland, Germany, Belorussia, the Czech Republic, Slovakia, and Hungary and to continue its hybrid deliveries to Russian-controlled refineries in Ukraine, Romania, Bulgaria, and Serbia.
Over the past several years, against the background of diversification of export routes and development of new oil and gas centers in Eastern Siberia and in the Far East, there has been an increase in the deliveries of crude oil and oil-products to the Pacific market, which is today the biggest and fastest growing market for energy products in the world, combining the countries of the Asia-Pacific Region and the Pacific Coast of the Americas. Oil production in the region is showing a trend toward reduction, while the consumption and imports from other regions have been growing at a fast pace. While Russia’s main competitors on the Pacific market are, primarily, Middle East countries, the distances over which their own shipments must travel are on average two to five times longer than the distances that deliveries must travel from West or East Siberia. Moreover, they involve additional transportation risks (including passing through the Gulf of Aden, the Gulf of Oman and the Straits of Bab el-Mandeb, Hormuz, and Malacca). The main customers for Russian oil and oil-product exports to Pacific destinations include China, Korea, Japan, the United States, Thailand, and Singapore. While China is likely to remain the region’s most lucrative market in the coming decades, there are some good prospects for considerably expanding exports to Korea, the U.S., Philippines, Thailand, and Vietnam and for starting shipments to Indonesia.