Certain circles in Russia launched campaign against reverse use of Baku-Novorossiysk oil pipeline

On Saturday November 9, 2013 Russian state-run company Rosneft has held a session of the Board of Directors, but the decisions made at the session are kept secret, Russian Arguments and Facts newspaper cited a source from the company.

“The reason it is kept secret is that reverse use of the Baku-Novorossiysk oil pipeline, which could cause a significant damage to Russia, has been discussed at the session,” writes the newspaper.

About 6 million tons of oil is transported via the Baku-Makhachkala-Novorossiysk oil pipeline. 1.5-2 million tons of Azerbaijani oil of year was transported from Baku to Makhachkala, where it was mixed with approximately 4 million tons of oil from Kazakhstan, Turkmenistan and LUKoil’s Caspian fields.

There was an intergovernmental agreement between Russia and Azerbaijan, according to which Baku had a preferential pumping fee. Using the Russian pipeline Baku has saved over $10.00 per ton on oil transportation to the markets against the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. (However, the Russian newspaper does not write that Azerbaijan has lost almost the same per 1 ton, because of oil quality – Turan).

The intergovernmental agreement between Russia and Azerbaijan will be terminated at the end of this year, which means that the oil pumping cost will go up (if the agreement on the commercial pumping is concluded).

In August 2013 Rosneft and SOCAR concluded the cooperation agreement on the reverse use of the Baku-Makhachkala-Novorossiysk oil pipeline. Azerbaijan will benefit from the pipe reverse. In addition to Rosneft’s oil, which Rosneft President Igor Sechin promised to transport via BTC, the whole volume of oil, which was earlier delivered to the Makhachkala port, will be transported via the pipeline. Oil transshipment makes four fifth of the port capacity and in absence of oil the port can be closed. 

The talks about the Baku-Makhachkala-Novorossiysk reverse have already changed export plans of Kazakhstan and Turkmenistan. In 2010 Kazakhstan suspended oil export via BTC, because of rise in pumping fees by the pipeline owners. Turkmenistan preferred to sell oil to Iran and Uzbekistan and transported an insignificant volume via BTC. Kazakhstan Tengizchevroil company has recently signed the agreement to export 4 million tons of oil a year via Azerbaijan since 2014.

The Makhachkala-Novorossiysk pipeline’s reverse towards Baku will help Azerbaijan and BP to load half-empty BTC and reduce their operation losses, including at the expense rise in fees in absence of a competitor. Russia will lose the oil terminal in Makhachkala port and its political influence in the Caspian region. Therefore, the Board of Directors of Rosneft has the reasons to keep its plans concerning the pipeline reverse secret. For BP, which holds about 20% shares in the company, the plans are not a secret.—0—