Russia has seen a significant increase in oil exports since the beginning of the 1990s. Factors that have contributed to this include lower domestic demand combined with high foreign prices of crude oil and the removal of export quotas. Around 70 percent of Russia’s oil production is exported at this time. Exports are mainly focused on markets such as Europe and the former Soviet states. In recent years, exports have however increasingly focused on growing markets in Asia. About half of all exports, or a third of total production, is transported via Transneft’s system of pipelines or via a series of export ports. Other key modes of transport are trains and riverboats. The costs of transport by train or river are significantly higher than using pipelines.
There are no longer any formal export limitations that prevent producers from exporting the oil abroad. However, oil producers are often forced to sell oil on the domestic market as a result of limitations in Transneft’s pipeline capacity. To use Transneft’s system of pipelines, companies must apply for export capacity for each quarter in advance and the allocation of said capacity is based on actual deliveries during the past quarter. Domestic and foreign companies are permitted to use Transneft’s system on equal terms. When total demand exceeds available capacity, the system’s capacity is divided up proportionally according to deliveries during the past quarter. This capacity limitation has generally resulted in a domestic excess of supply over demand, which results in a relatively lower price of crude oil in Russia in comparison to the world market price. During the past years, a whole series of expansion projects have been carried out concerning Transneft’s capacity. Noteworthy among them are the expansion of the Baltic Pipeline System (BPS) which gives Russia the ability to reach the market in Northern Europe via the newly built port in Primorsk, the Druzhba-Adria Project which includes a change in direction in the Adriatic pipeline which goes from the Croatian port of Omisalj to Hungary and a pipeline to the export terminal in Murmansk, which enables oil exports from the Timan–Pechora Region. One of the most important projects in Russia is the expansion of the ESPO (Eastern Siberia-Pacific Ocean) pipeline, which enables exports to the Asian markets. The first stage of two is already under way and the connection to China as well. The pipeline is being supplied with oil from the Tomsk region among others.
Figure 10: Eastern Siberia-Pacific Ocean oil Pipeline – ESPO
Source: Haute Ecole de Gestion de Genève (2013).