April 24, 2006

Russia should cut oil to overfed Europe: Transneft

MOSCOW (Reuters) - Russia's planned oil pipeline to Asia
will help cut deliveries to Europe, which is currently being
oversupplied with Russian crude, the head of Russia's pipeline
monopoly Transneft told a newspaper.

"We have overfed Europe with crude. And every single
economic manual says that excessive supplies depress prices,"
Semyon Vainshtok told the daily Nezavisimaya Gazeta in an
interview published on Monday.

"So far we cannot reduce supplies as all our exports are
going to Europe. But as soon as we divert (flows) to China,
South Korea, Australia, Japan it will immediately take away
crude from our European colleagues," he added.

Vainshtok has repeatedly said that building a pipeline to
Asia would help diversify Russian oil flows and cut discounts
on the country's mainstay Urals crude blend in European

His new comments are likely to come under much closer
scrutiny after another Russian monopoly, state gas behemoth
Gazprom, shocked Europe last week by saying it would supply gas
elsewhere if its expansion in Europe was blocked.

The European Union said Gazprom's threats only confirmed
Europe's views that it needed to diversify its energy imports.

Russian critics say Gazprom's comments meant the Kremlin
was increasingly actively using its energy power as a weapon in
a situation when Europe relies on Moscow for a quarter of its
gas needs and Russia produces every ninth oil barrel in the

Vainshtok said Transneft planned to use a shipping fee of
$38 per tonne of crude oil on the Asian-Pacific pipeline route
to make it competitive with current fees paid on the route to
the Black Sea port of Novorossiisk.

The $11.5-billion pipeline will ship 600,000 barrels per
day at the first stage, mainly to China, with supplies rising
to 1.6 million bpd at the second stage, when a big terminal is
build on the Russian Pacific coast.

Vainshtok said his firm would borrow 13.4 billion roubles
($487.1 million) from state bank Sberbank and another $2
billion via a five-year loan from Western banks. The firm had
previously planned to borrow up to $6 billion from Western
banks, led by Barlays.