Another round of Europe's energy wars goes to Kremlin

Bush backs another loser in Europe's energy delivery wars.

Moscow - 

The decision of the Estonian government to remove the city's Soviet war memorial and the graves of Red Army soldiers who fell in the last war against Germany has been an on/off thing for months. Now that it's on, clashes between protesters and supporters, have already cost one life (Russian); inflicted grievous bodily injury; damaged property; affronted the amour-propre of Estonian diplomats in Moscow; and generated reams of anti-Russian media copy across Europe and the United States.

Even President George Bush has weighed in -- on the side of the Estonian victims of an alleged Kremlin oil cutoff.  Only there's no evidence of this. An unusually warm burst of spring and early summer weather across Europe is the real culprit, cutting demand for both gas and heavy oil for heating.

Gazprom, Russia's dominant gas exporter, has also been feeling the pinch from the weather, reporting this week that its exports to Europe fell in the January-March period by 24%, compared to the same time in 2006. But if Mother Nature can be pressed into campaigning against the Kremlin on behalf of  the Bush Administration, why blame Reuters for failing to check the temperature, and for putting the blame on President Vladimir Putin instead? 

Russian oil industry sources are adamant that Russian oil shipments for re-export from Tallinn, the Estonian capital,  are running at their normal seasonal level for the month of May. Mazut, heavy fuel oil, is the biggest volume cargo, most of which is loaded at the Maardo terminal of Tallinn port. The Muuga terminal loads mostly gasoline, and the Tallinn terminal,  diesel and mazut. The Russian oil exporters are TNK-BP, which is controlled by British Petroleum; Gazpromneft, the state owned successor to Roman Abramovich's Sibneft; and Surgutneftegas, a management controlled entity with powerful Kremlin friends. 

The industry sources are categorical in contradicting claims aired by Estonian politicians, US government officials,  and western media, all of which have charged the Kremlin with imposing a rail and oil squeeze on Tallinn. Natalia Vialkina, spokesman for state oil producer Gazpromneft, told Mineweb:   "We have fixed all the planned volumes [for shipment to Tallinn]." She added she cannot disclose the exact tonnages of the oil products, as this is commercially sensitive, but she confirms there has been no cutback this month.

Raisa Khodchenko, spokesman for Surgutneftegas, adds: "We have no significant changes in volumes. We've fixed all our volumes for May to ship to Estonia." 

TNK-BP said it will not be able to report the volume of shipments until "the end of this week". The comment was echoed by trade sources, who explain that evidence for a cutback is impossible to detect until the end of the month at the earliest. There is no basis for speculation, alleged to be from unidentified traders, that Russian rail deliveries of oil to Estonia have been curtailed, on Kremlin orders.

The spokesman for the Russian railways company, RZD, told Mineweb: "I can't understand the stir happening here. We have transport 'windows' to allow scheduled repairs for May on the route, and we are completing our obligations. We don't want to be driven into speculation."

In April, before protests erupted over the Estonian decision to relocate a Russian war memorial in the capital city, Tallinn's three terminals loaded 1.6 million tonnes of Russian oil. The monthly average from January to March was higher, reflecting winter demand, at 2.3 million tonnes. The monthly average logged last year was 2 million tonnes. 

As is traditional in the affairs of the Baltic states, nostalgia for Adolph Hitler is a cash register that promises to spit out money for all types of interests. Initially, the local Tallinn land developers, who stand to make the most out of the  relocation of the Soviet memorial, lacked the clout of the Estonian shipping lobby. In February, when the Estonian parliament put off the relocation decision, the interests of Tallinn port were at odds with those of the real estate developers. But after twelve weeks of stirring, the latter have now prevailed. The former must now begin to count their losses.

One generally believed report, put out by Reuters, turns out to be false. The Russian railways (RZD) have not imposed a blockade of oil and coal cargoes into Estonia. These shipments for loading and re-export at Tallinn are the lifeblood of the port, and of the Estonian shipping and financial agents who live off the Russian trade.

RZD's spokesman Irina Shabanova told Mineweb the political controversy between Russia and Estonia has had no impact whatever on transportation. "There is a big stir here now about Estonia,"she acknowledges. "But in fact it is the usual practice that we  repair the route in the spring,  and have technical ‘windows' for scheduling this. I can assure you that all applications for May from traders have been accepted and we have also spoken to the Estonian railroad and the Estonian trade representative [in Moscow]. They confirm they have no problems from their end."

She adds that the press claims of a blockade began when "one trader who failed to confirm his application with RZD spoke to Reuters and complained about the ban." A Russian transportation source adds this is the usual time of the year for scheduled repairs. But  the source also claims that RZD appears to be taking a stricter approach towards trader and shipment applications. "I am not sure whether this is connected with the political situation or with technical problems and nobody will say for sure, " the source said.

There are no refineries in Estonia, and Russian shipments by rail are of petroleum products for export. Oil shipments through Tallinn have been stable for the past four years at 24 million tonnes per annum. By contrast, coal shipments from Russia to Tallinn have been on the rise. They were 2 million tonnes in the first quarter, up 42% year on year, and a target of 10 million tonnes has been set for this year. This is a fivefold increase since 2002. For the time being, the political propaganda is silent about the coal trade.

The confrontation has triggered bitter reaction from the Russian parliament, which has taken its cue from Putin, who told Germany's Chancellor, Angela Merkel, at their summit meeting in Sochi in February, that the relocation was grandstanding on Estonia's part, with the aim "to gain some kind of advantage."

The timing comes as the latest port data show Tallinn's lead over rival non-Russian Baltic ports depended in 2006 on oil and coal. Oil volume accounts for almost 60% of Tallinn port's total tonnage. This could change if the political crisis worsens. But if oil shipments were to fall, the impact would be cushioned by the rapid growth of coal shipments. Other dry-cargoes from Russia have been growing at an annual rate of almost 30%, but not steel and non-ferrous metal cargoes, which fell last year by 10% and 5%, respectively. Trying to thwart the obvious, Estonia's prime minister Andrus Ansip has claimed that economic sanctions from Russia "cannot influence the decisions of a democratic sovereign state."

But commercial competition, the hidden hand of the Baltic  trade, can. In less than five years, Transneft, the Russian state oil pipeline company, has created a new Russian oil port of Primorsk, on the Gulf of Finland, and it now dominates tanker loadings.  This has anchored most of the Baltic market to the Russian shore.

Putin has been less successful on behalf of Kaliningrad, the Russian territory within Lithuania,  which was taken by the Red Army from the Germans,  who used to call the town Konigsberg. Kaliningrad remains a very small operator still in the Baltic oil trade. But it is Russian state policy to help it to grow. Accordingly, a source at the port reports  "we've started to process oil products quite recently, but you can see there is sizeable growth in volumes." In the first four months of 2006, Kaliningrad loaded 25.8 tonnes of oil products for export. In the same period to April 30 of this year, the volume had jumped sevenfold to 179.7 tonnes.

This oil has to come from somewhere, and there is little doubt that the non-Russian Baltic ports are the losers. But for the time being, the volume moving through Kaliningrad is a drop in the bucket, compared to Tallinn."I will not bet that [Kaliningrad's growth] is connected to Estonia," the port spokesman said. 

When the Soviet Union included the Baltic states, they provided all the northwestern maritime gateways that Moscow needed. When the union collapsed, Russia suddenly found itself more landlocked than was comfortable. The creation of Primorsk, Ust-Luga, Vysotsk, and Kaliningrad on the Baltic,  expansion of Arkhangelsk on the White Sea, and the building of Varandey on the Barents, were a natural reaction. This port strategy has been under way for a decade now.

The obvious losers have been, and must be,  the Baltic states, and the long-term data on oil export flows and tanker loadings prove it. In the short term, however, the Kremlin is not wielding its oil weapon against Estonia. It doesn't need to -- time and Baltic tanker commerce are on its side. Hostility towards Putin in the media have also blinded observers to the subtlety with which Russian oil delivery strategy manipulates the Estonians. For they are afraid that the rival ports of Lithuania and Latvia -- Ventspils, Riga, Klaipeda, Butinge -- may regain Russian oil cargoes, at Tallinn's expense, while the expansion of Primorsk and the other Russian ports continues relentlessly.

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