Code Murmansk

“The Murmansk Pipeline” has become a magical code in the relations between President George W. Bush and President Vladimir Putin. It is described by DEBKA-Net-Weekly‘s Washington and Moscow sources as a powerful keyword for a range of major international issues such as stability in Iraq and the guerrilla war waged against US forces there, the global war against al Qaeda now beginning its third year and the threat of North Korean and Iranian nuclear armament. In the last few days the two leaders exchanged messages reaffirming the reciprocal pledges they made on June 1 when they met at St. Petersburg (as reported by DEBKA-Net-Weekly in Issue No. 111 on May 30, 2003).

The most important pledge made by Bush was a promise of US financial and technological assistance for the Murmansk Pipeline Project.

This colossal project entails the building of a major new pipeline to ship West Siberian crude through a deepwater terminal near Murmansk inside the Arctic Circle from Russia to North America. The pipeline would not only reduce American dependency on Middle East oil, but bring a major oil source significantly closer to the American market than the Persian Gulf.

Murmansk has two major advantages. It is a deepwater port, capable of handling the largest supertankers and, despite its location north of the Arctic Circle, is able to operate around the year.

Construction is projected to begin in 2004 with the pipeline being ready for operation in 2007. Preliminary estimates put the total cost at between $3.4 bn and $4.5 bn, depending on the route finally chosen.

According to the US-Russian program discussed at the St. Petersburg summit, some 13 percent of US oil imports will come from Russia by the year 2010, reducing the OPEC input from 51 percent of US consumption to 40-42 percent in 2010.

On the strength of this pledged partnership, the two presidents decided in St. Petersburg that while their policies might ostensibly differ on various key issues such as Iraq and Iran, their basic mutual commitment would be preserved. For instance, Washington would receive from Moscow tangible covert military and intelligence support for standing up to the guerrilla war in Iraq.

This cooperation intensified in recent weeks when Chechen separatist fighters were discovered to have joined the guerrillas fighting American forces in central Iraq. (See DEBKA-Net-Weekly No. 121 of August 15, 2003).

Our military sources reveal that Moscow has secretly sent over to Iraq a group of its finest intelligence experts on Chechen warfare with information for the American command on their combat methods, their identities and the routes that brought them into Iraq.

Presidents Bush and Putin have also secretly agreed to prevent Iran attaining the capability for building its own nuclear bomb.

The US President was taken aback to discover (as reported by DEBKA-Net-Weekly of August 27) that Russian AVLIS-atomic vapor laser isotope separators for fast uranium enrichment had reached Iran. In a secret communication to the Kremlin, Bush accused Putin of breaking their agreement. DEBKA-Net-Weekly‘s Moscow sources report that Putin replied post haste that he had not known about this shipment, had ordered it stopped and launched an inquiry to find out who was responsible for sending AVLIS systems to Iran.

This episode attests to the fragility of the understanding between the two presidents. The Murmansk project is also beginning to attract various interests seeking to use it to further their goals or the opposite, to prevent it from taking off.

DEBKA-Net-Weekly‘s Washington’s sources sum up its origins and chances.

Russia’s largest oil producers, Lukoil, Yukos, Tyumen Oil, Surgut and Sibneft – which account for about half of Russia’s oil production and are rivals in other areas – agreed last year to join in the construction of the Murmansk pipeline, funding the project from private sources and financing a feasibility study to be carried out by the state company Transneft, which would also act as its operator.

Transneft agreed to carry out the feasibility study, indicating the state company will accept the role of operator. However, the company’s deputy director Sergei Grigoriev has denigrated the Murmansk project as expensive and, therefore, of a lower priority for Transneft than other projects, such as the expansion of the Baltic pipeline system to Primursk or the pipelines to China and Croatia. He estimated the feasibility study would be finished in two years. His lack of enthusiasm for the Murmkansk pipeline may arise from the fact it would it be the only Russian pipeline Transneft does not own.

Russia’s oil producers complain about Transneft’s slowness. They say if the project is not implemented soon, the acute capacity bottleneck in Russia’s oil export infrastructure could force transportation costs to skyrocket and a cut in production.

Yukos-Sibneft Merger

When the two companies finalize their merger, their combined production will reach 2.3 million bpd, making the new firm the sixth largest in the world and triggering further amalgamations. At present, while Russia is the second largest oil exporter in the world after Saudi Arabia, its dozen or so producers are too small to compete with the big international firms.

The goal of the joint Yukos-Sibneft company, approved by the Russian government, is to compete with the international giants like Exxon Mobil, BP and Royal Dutch/Shell for financing, reserves and markets. The formation of a Russian oil giant enables Putin to ward off domestic criticism of American domination of Russian oil resources, including the Murmansk project.

At the same time, DEBKA-Net-Weekly’s energy experts in Washington report that the different US oil lobbies have begun discussing who will finance and own the Murmansk pipe. The Export Import Bank could be used as well to help finance the project and expanded Russian oil exports – possibly by means of credit guarantees for the Russian oil companies.

This and other projects will come up before the coming US-Russian Energy Summit taking place in St. Petersburg in mid-October.

Advantages of Murmansk Terminal

  1. The Gulf Stream currents prevent the freezing of its waters, which means the terminal can be used the year round.

  2. Its waters are deep enough for 300,000-ton super tankers, reducing costs and making it possible to export massive cargoes of up to 9 million barrels of crude per day (450 million per annum).

  3. The pipeline will be privately owned instead of a government monopoly.

  4. The tankers can head straight out of Barents Sea into the Atlantic and on to the US coast.

The Military Aspect

These assets also made Murmansk a favorite main base for the Russian Northern Fleet’s Atlantic operations. While the Russian fleet and air commanders refrain from speaking out openly against the Murmansk pipeline project, they are far from happy. They are worried about their main facilities against the US Navy being opened up to intelligence penetration. The construction of a deepwater terminal will enable the Americans to install electronic surveillance equipment that could jam Russian naval operations.

These objections are set aside firmly by Putin’s military advisers who say that, in any case, large sections of the Murmansk base have fallen into disuse and their installations and the warships and submarines moored there are rusting over. Turning the port over as an oil terminal, they say, will make it possible to move the Russian Northern Fleet to a smaller and more modern base.

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