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Oil and product transportation

Regulation

Access

Transneft, a state monopoly, controls the trunk pipelines shipping crude oil and petroleum products (the latter through its 100% subsidiary, Transnefteprodukt) in Russia.

Based on information provided by the oil producers, Transneft allocates pipeline and sea terminal capacity to oil producers for export deliveries on a monthly basis. Such rights are generally in proportion to the volume of crude oil that producers declare they will deliver in the upcoming period, and Transneft’s capacity. Once allocated, oil producers can apply for extra quotas which will be granted only if Transneft has spare capacity. Transneft has been responsible for this dispatching function since 2006 when it was transferred from the Federal Energy Agency, leading to its eventual abolition in 2008.

Renaissance Capital

20 June 2019

Russian oil & gas

State monopoly, Transneft, ships crude and products via pipeline

Last year (2018), non-FSU exports via Transneft accounted for approximately 44% of companies’ deliveries into the Transneft system, while CIS shipments represented approximately 4%.

Transneft has very limited ability to transport individual batches of crude oil, which results in the blending of crude oil of differing qualities. Transneft does not currently operate a quality bank system that would compensate or punish individual producers for the crude stream that they account for. Technically, Transneft could introduce this at any time, but the government’s will has been missing so far. While widely discussed in recent years, the likelihood that the quality bank would be introduced seems remote to us at present. However, worsening quality of Russian crude may revive discussion for a quality bank in the coming years, we think. Transneft has come up with a radical proposal to dedicate the 30mn tpa Ust-Luga port exclusively to exports of high sulphur crude, but the decision is a few years away, we think.

Deliveries through Transnefteprodukt, which only connects certain refineries to markets, are based on applications from the oil companies and the Transnefteprodukt pipeline capacity that is available. Transnefteprodukt’s infrastructure is a lot smaller in terms of scale than Transneft’s.

Tariffs

Tariffs for using pipelines are set by the FAS (the regulator) but de facto decided by the government.

Transneft’s tariff structure improved significantly between 1999 and 2002. Since January 1999, there have been two components of the basic tariff – a pumping tariff and another covering handling and dispatching services. In May 1999, the previously fixed dollar-denominated export surcharge was also turned into a distance-related tariff, i.e. all tariffs began to be set in reference to traffic (volume times distance shipped, i.e. per 100 tonne-km). In February 2002, unit domestic and export tariffs were harmonised, although export tariffs were dollar-denominated until 1 January 2007, when they were changed to rouble denomination.

A number of specific regulated fees are also levied for services such as loading, transshipment, offloading, storage and/or delivery of crude, and are all set in RUB/100 tonnes. These are charged in addition to the basic tariff, but their overall share of the total tariff is small. Transneft has also periodically imposed specific investment levies. Furthermore, Transneft charges transit tariffs over which the FAS has oversight, but which are essentially the result of periodical intergovernmental agreements. The main revenue source in this regard is the transit of Kazakh crude.

44% to non-FSU destinations and 4% to FSU customers

No quality bank

FAS is in charge

There have been no changes to the tariff structure since 2002

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Renaissance Capital 20 June 2019

Russian oil & gas

Figure 128: How does it all get out? Flow of Russian crude and refined products, 2018, mnt

											Russian crude
Transit crude		18.6					461.1												94.7					0.0			Transit crude
													production
		Transneft									249.5					37.5				Railway, other

Export

169.2

Refineries

117.8

Export

230.5

57.2

Transnefteprodukt-

Other refineries

connected refineries

39.2

130.0

Shipped via

Railway, other

Railway, other

Transnefteprodukt

Export		Domestic
28.6	10.6

Source: Transneft, Transnefteprodukt, Argus, Renaissance Capital

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