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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: energyplay who wrote (8380)	8/16/2006 11:30:45 PM
From: TobagoJack	Respond to of 217738

Still like Vermilion, because ... Stratfor update :0) Lithuania, Russia: Pipelines and Pretexts Summary The ruptured spur of the Druzhba Pipeline from Russia to Lithuania and along the Belarusian border may be forced to close down indefinitely due to the pipeline's age, Russian pipeline operator Transneft said Aug. 16. Most Russia infrastructure, however, is as old as the pipeline. Moreover, Russia has always run its pipelines into the ground before shutting them down, suggesting this move might have been motivated by considerations beyond pipeline age. Analysis The spur of the Druzhba Pipeline from Russia to Lithuania that ruptured July 29 may be forced to close down indefinitely, Russian pipeline operator Transneft's President Semyon Vainshtok said Aug. 16. Vainshtok added that "the lifespan of a pipeline according to industry norms is 30 years. Druzhba is 42. It is made out of metals that are now forbidden." Most of Russia's pipeline infrastructure, however, is around 40 years old and in deep decay. Thus, Russia may be using the pipeline as a pretext to throw its weight around regionally. The rupture disrupted the transfer through the pipeline of 324,000 barrels per day (bpd), 300,000 bpd of which go to Lithuania's Mazeikiai refinery. The media did not report the rupture until Transneft said it was repaired. Since the breach, the refinery has worked at a significantly reduced supply, though the other refineries along the pipeline, in Belarus, have received full supplies. The official investigation into the rupture indicates decay and neglect caused it, which is not uncommon in the 40-year-old Soviet-built pipeline system. The complete shutdown of a piece of that system due to the decay is uncommon, as Russia pushes its aged system for all it is worth. This spur of the Druzhba supplies 90 percent of Lithuania's oil, and the Mazeikiai refinery provides 10 percent of Lithuania's $25.5 billion gross domestic product. A complete cutoff of this oil supply would devastate not only Lithuania, but also its Baltic state neighbors, Latvia and Estonia, which receive the majority of their oil supplies from the pipeline via Lithuania's Butinge port and Latvia's Ventspils port. The announcement of a possible cutoff comes just three weeks after Polish energy company PKN Orlen bought Mazeikiai. Though Russian state-owned oil company Rosneft was interested in purchasing the refinery, the Lithuanian government chose Orlen. Following the rupture in the pipeline and decreased supplies to Mazeikiai, some Lithuanian members of parliament accused Russia of using its energy resources to gain more control regionally by forcing ownership of Mazeikiai into Rosneft's hands. Following today's announcement of a possible cutoff, Lithuanian Economy Minister Vytautas Navickas said it was unlikely the pipeline would stop operating, saying "Russia is making money from this pipeline. Why would they shut down this business?" Russia's use of its energy resources to get its way politically outweighs any financial gains from the supplies, however. Moscow's reliability as an energy supplier is already in question, especially after Russia cut off natural gas supplies to Europe during a natural gas dispute with Ukraine in January. Shutting down the spur would mean the entire system, which carries 1.2 million bpd to most Central European states, including Croatia, the Czech Republic, Germany, Hungary, Poland, Slovakia and Ukraine, would need to be shut down. Thus, Russia's move probably has more to do with using its resources to politically strong-arm its neighbors rather than with concerns about decaying infrastructure.