Adamkus offers Belarus oil transit possibilities, while Russia continues its ‘bypass frenzy’

The Baltic Times
Gary Peach, RIGA
February 22, 2007

Oil transit was thrown into the spotlight again last week after announcements that Lithuania was interested in helping Belarus curtail reliance on Russian oil imports and that Russia”s Transneft intended to build to new pipeline bypassing Belarus.

While in Washington, Lithuanian President Valdas Adamkus told a press conference at the National Press Club that the Baltic state has offered Belarus use of its oil import terminal and pipeline system to import crude oil. He added that he had spoken with Vice President Dick Cheney and Energy Secretary Samuel Bodman about the idea.

The announcement was surprising given the chill in Lithuanian-Belarus relations and the increasingly isolated Aleksander Lukashenko. But as Adamkus explained, the overture was made not to support the dictatorial regime, but to meet the Belarusian people”s needs.

Remarkably, the same day Semyon Vainshtok, CEO of Transneft, Russia”s pipeline operator, said in London that the company would built a new trunk of the Baltic Pipeline System that would bypass Belarus and trail north toward Primorsk on the Gulf of Finland.

The new pipeline would stretch from Unecha, near the border with Belarus, to Primorsk, where Russia opened its stateoftheart terminal in 2001. The pipeline would have a capacity of 50 million tons and essentially replace the Druzhba pipeline that currently crosses Belarus, thereby bequeathing Russia additional leverage in dealing with Belarus.

Not surprisingly, Vainshtok”s announcement was at first met stoically in Minsk, but two days later on Feb. 15 Belarus announced that it was raising fees for oil transit from $2.6 to $3.5 per ton of crude.

All three developments – the two announcements and the tax increase – point to the increasingly politicized atmosphere in Europe”s oil transit market and a possible realignment of forces and oilflows.

Still, it was Adamkus” announcement that caused the most consternation, given the all but frozen relations between the leadership of Belarus and the European Union. The spin from Lithuania was quick in coming.

“This time it can be complimented for independence and new initiative. It is also positive that our neighboring European Union countries – Poland and Latvia – will also join the effort,” Raimundas Lopata, a political science professor at Vilnius University told the Baltic News Service.

Lithuania is still bristling at Transneft”s footdragging on the oil delivery issue. Since last summer, when a leak was discovered in part of the pipeline in Belarus, Lithuania has not received any Russian crude via pipe, and the Mazeikiu Nafta refinery has been forced to import crude through the Butinge terminal on the Baltic Sea.

Worse, the prognosis is not good for the Baltic state. Vainshtok said last week that the results of an inspection of the pipeline would be announced on March 2, but given the company”s varying priorities – new pipelines to Primorsk and Asia – the results are unlikely to be favorable.

This is the main point Adamkus tried to drive home while in the United States. “Lithuania has no energy supply alternatives, so the main suppliers in Russia might convert even the technical problems into a tool of political pressure,” he said.

So far it appears no concrete deals have emerged. Klaipedos Nafta CEO Jurgis Ausra told the Vakaru Ekspresas daily that negotiations with one Belarusian plant continued. “During negotiations we talked not only about conventional cooperation but also about import of crude oil,” Ausra was quoted as saying.

Lithuania”s initiative regarding Belarus could be perceived less as a gesture toward the Belarusian people as an attempt to create a new oil transit network that would link the Baltics to Central Asia via the Caucasus and Ukraine.

Ukrainian President Viktor Yushchenko, a close ally of Adamkus, said he hoped cooperation between Belarus and Lithuania in the oil transit sphere would develop.

Ukraine has also felt the tightening vice of Russia”s energy policies and suffered a temporary cessation in natural gas supplies after the prowestern Yushchenko won the presidential election.

Russia, in the meantime, appears deadset on building its “Belarus bypass.” The Fuel and Energy Ministry has submitted a proposal on the pipeline to the government along with appropriate applications to coordinate construction. Initial capacity of the pipeline will be 50 million metric tons but will grow to 75 million later. At full capacity the pipeline will double current outflow at the Primorsk terminal to 150 million tons.

On the down side, doubling the capacity at Primorsk will lead to increased shipping traffic in the Baltic Sea, which is bound to raise concern among neighboring states. Environmental experts say it is a matter of time before a serious accident occurs in the Gulf of Finland area, where tanker traffic has surged in the past five years.

While in London, Vainshtok said that Transneft was preparing a 500 million euro bond offering that would help finance pipeline construction.