HOUSTON -- Recent shipments of Russian crude oil have had little impact on the US market, but Russia could become a big supplier to the US, a well-known energy consultant said.
Russia could become one of the top 10 US oil suppliers in the next five years, exporting at least 500,000 bpd to the US, Daniel Yergin, chairman of Cambridge Energy Research Associates, told.
Yergin was in Houston for the US-Russia Energy Summit. Yukos Oil, Russia's second-largest oil producer, sent the first shipment of Russian crude oil directly to the US in early July.
By the end of this month, it will have shipped 8 mm barrels of Urals blend, valued at $ 175 mm, to the US Gulf Coast.
ExxonMobil bought most of that oil with a small amount going to TotalFinaElf. "We're roughly shipping 1 mm barrels a month," said Mikhail Khodorkovsky, CEO of Yukos, speaking at the energy summit. The oil Yukos is shipping comes out of the Black Sea in two tankers, is transferred to a supertanker in the Mediterranean then shipped to the US.
The company wants to get financial data from an entire year of shipments before it makes further plans to participate in the US market, he said. One factor Khodorkovsky is looking at is the difference between prices in the summer and the winter.
Yukos will likely face competition from another Russian oil company in the US market next year. Marathon Oil and Rosneft have signed a letter of intent to create a new venture, Urals North America Marketing, to transport and market Russian crude in North America.
If they can reach a definitive agreement and get the needed approvals from the US and Russian governments, their long-term venture would begin in the third quarter of next year. The companies plan to ship oil to the Louisiana Offshore Oil Platform, a deepwater facility in the Gulf of Mexico.
Urals crude oil now goes mostly to European markets, where demand is static and competition is increasing from supplies out of Africa, said Dennis Francis, director of Eurasia business development for Marathon. The companies will have to lower costs enough to make shipments to the US profitable. Currently, the US market price minus the shipping cost gives a lower netback price than Russian crude shipments to Europe.
With that kind of mathematical problem to overcome, why are Russian oil companies interested in the US market? Russian companies want security of demand because there is a crude oil surplus in Russia, said Joseph Stanislaw, president and CEO of CERA. By diversifying their markets, they can lower their taxes and get better deals.
Russian crude is compatible with refineries in many countries so it can earn a premium in those markets, he added. The economics of exports to the US can be improved, however.
"It all depends on export facilities, especially in the North," said Yergin. "Russia needs to rethink how oil flows in the country. The strategic route to the US market is through the North."
The Russians already are planning to open that northern route with the development of a new deep water shipping facility in Murmansk, on the Barents Sea in northwest Russia, said Igor Yusufov, the Russian energy minister. Although Murmansk is above the Arctic Circle, it's ice-free all year. Studies have shown that the Murmansk facility would be very profitable, especially for shipping crude oil to US refineries, Yusufov said.
As reported, Yukos is negotiating to build the Murmansk facility that could load directly into supertankers. Khodorkovsky said the facility would probably be operating by 2007, possibly starting with shipments of 400,000 bpd. The US market could eventually handle 2 mm bpd of Russian crude out of its import requirement of 9 mm bpd, he said.
Yukos hasn't spoken to prospective US investors about the Murmansk crude oil shipping project but there's big interest among producers, Khodorkovsky said. When the time comes to finance the project, he's "absolutely confident" there will be more than enough capital to proceed.
The Murmansk shipping facility would require a new pipeline system to move crude oil to Murmansk from production fields in Siberia. It would take two to three years to complete the pipeline project, which would cost about $ 2.5 bn.
Source: Dow Jones
