Six nations sign Druzhba-Adria project deal

Dec 16, 2002 01:00 AM

The representatives of six east European countries signed an agreement on a joint Druzhba-Adria project of integrated oil pipelines that would connect rich Russian oilfields to the Adriatic sea. The integration of the Druzhba and Adria pipelines, which meet in Hungary, aims to enable Russia to increase exports of its crude to the Mediterranean and other world markets through the Croatian deep-sea port of Omisalj.
The project involves a gradual increase of exports from 5 mm tons to 15 mm tpy of crude (100,000 to 300,000 bpd). "Druzhba-Adria pipeline will represent an oil artery for this part of Europe and it has the utmost economic and geostrategic importance for Croatia," said Croatian Prime Minister Ivica Racan, who attended the ceremony.

Overall costs of the project, which includes Croatia, Russia, Belarus, Ukraine, Slovakia and Hungary, are estimated at $ 300 mm, and its completion is planned for the end of 2003. The agreement was signed for a period of 10 years with a planned extension for another decade. The 3,200 km (1,988-mile) pipeline starts in the Russian Samara and ends in the northern Adriatic port of Omisalj in Croatia.
Russian oil companies Yukos and Tyumen have provided guarantees to transport 5 mm tons of oil -- 2.5 mm tons each -- through the integrated pipeline per year. Yukos CFO Bruce Misamore said crude exports to the United States would remain a priority growth area for the company.

Yukos has been sending large volumes of crude every month to the United States this year but says the profitability of the shipments would be greatly improved by better infrastructure. "Projects such as the Adria pipeline and the Murmansk port -- once they are up and running -- have the potential to make Russia a truly world class (energy) player," Misamore told.
The Croatian part of the pipeline network Janaf, originally built as a one-direction link for transporting crude from the Adriatic coast to the north and east, will have to invest $ 70 mm to increase its capacity and make itoperable in both directions. "The investment of reversing the pipeline is $ 20 mm. We plan to finish it by the end of next year and the pipeline will then be able to transport oil in both directions," said Economy Minister Ljubo Jurcic, who signed the agreement on behalf of Croatia.

The agreed cost of oil transit is $ 0.64 a ton per 100 km. Adam Landes, oil and gas analyst with Renaissance Capital in London, said any plan to widen the reach of Russian oil was welcome even though Omisalj's capacity of 300,000 bpd, would be small against a backdrop of total Russian exports of over 3 mm bpd.
"Europe is an oversupplied market, the United States is not," he said. "The Adria project offers incremental opportunities for arbitrage shipments of Russian crude to the United States."

Janaf has been mostly out of use since the 1991-95 wars in the former Yugoslavia. It now plans to boost its revenues by $ 30 mm in the first phase of the project from 2004 to 2006, when Russian crude export through Omisalj would total 5 mm tpy.
Janaf's installed transport capacity is 20 mm tpy while its projected capacity is almost 35 mm tons. This year it will transfer only 6.1 mm tons of oil.

Source: The Russia Journal Daily
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