RUSSIA - Part 3 - Oil Exports Soar; Logistics Expanding.

Russia's exports of crude oil, condensate and petroleum products in the first half of August rose to 6.35m b/d, up from 5.05m b/d in the same period in 2002 and 3.425m b/d in August 1998, compared to 2.35m b/d in September 1994. The rise is due to an increase in production, which has exceeded 9.6m b/d, compared to 7.62m b/d in the first half of August 2002.

Reporting forecasts from the Russian Industry and Energy Ministry, Reuters on June 16 said Russian crude oil exports from key seaports and via the Druzhba pipeline to central Europe in the third quarter of 2006 will rise 5% - by 220,000 b/d - to 4.45m b/d compared with the second quarter of 2006. Russia, the world's second largest oil exporter next to Saudi Arabia, has been actively expanding its ports. Shipments of its key Urals crude oil export blend may hit a new all-time high in the third quarter as the export plan is the biggest ever set by the ministry. The increase will be mainly due to bigger shipments to Germany and Poland, Ukraine's Black Sea ports of Odessa and Yuzhny and Russia's top Baltic Sea terminal of Primorsk. They will decline from the Polish port of Gdansk and to the Czech Republic. Supplies to Lithuania's Butinge crude oil export terminal and to the Mazeikiu refinery will remain largely unchanged, with the bulk of the volumes provided by state-controlled oil firm Rosneft.

Traders had suspected that the Kremlin might order a halt to these supplies after Poland's PKN Orlen recently bought the 190,000 b/d Mazeikiu refinery and the terminal from stricken oil firm Yukos which went bankrupt on Aug. 1, outbidding Russian rivals. But the schedule, as reported by Reuters, showed supplies to Butinge was to fall by 100,000 tons to 1.8m tons (143,000 b/d) and Mazeikiu was to get its regular 1.8m tons. Rosneft was to supply 1m tons to Mazeikiu and 0.66m tons to Butinge. TNK-BP was to supply 0.62m tons to Mazeikiu. LUKoil was to send 0.18m tons to Mazeikiu. GazpromMeft was to ship 0.2m tons to Butinge. Mid-sized Tatneft and Bashneft were to supply Butinge with 0.33m and 0.35m tons, respectively. Reuters quoted "a trader with a Russian major" as saying: "I can't see any change or a sign of an oil blockade on the Lithuanian front. It looks like Gunvor remains a co-ordinator in this route". Swiss-based trader Gunvor lifts most of the volumes of Rosneft, GazpromNeft and some of TNK-BP's volumes.

However, the state's oil pipeline monopoly Transneft has recently cut crude oil supplies to Mazeikiu Nafta (MN). International rating agency Fitch on Aug. 14 said Transneft's move to could be political. After an accident on the Druzhba pipeline in western Russia in July, crude oil supplies to MN were interrupted. Fitch said: "If supplies of Russian crude oil by pipeline to MN are not resumed within the next few weeks, this could lead one to conclude that political rather than technical reasons are to blame for the supply disruption..." Fitch also said oil refineries in Central Europe were vulnerable to supply risks due to their dependence on Russian crude. Fitch said refineries in the region did have access to alternative crude supplies, but interruptions to supplies from Russia would severely hit their profits. It said this was also driven by increasing price advantage of Urals, sold at a discount to Brent (as much as US$5/b in Q206). Fitch said: "...a mixture of political and economic reasons are behind the interruptions of Russian crude oil and gas supply to Central Europe experienced in the past two years..."