Russia Rebuffed in Latest End-Run Attempt Around U.S.-backed Pipeline

Reports are that Chevron and Exxon Mobil have held steady against Russian pressure to back an oil pipeline spur meant to diminish U.S. influence in the region.

The companies and Russia have spatted over oil exports for more than a decade. But the supply of crude out of the former Soviet Union has assumed new importance, with projected oil supplies tightening in the coming few years.

Last week, Russia’s pipeline monopoly, Transneft, demanded, among other financial incentives, an enormous increase in tariffs it is paid for crude shipped through a dedicated pipeline carrying oil from Kazakhstan's Tengiz pipeline. The hike for the line, called the Caspian Pipeline Consortium, or CPC, would be to $5.10 a barrel, up from the current $3.30 a barrel.

The backdrop is that Moscow also wants the two companies effectively to finance the proposed Burgas-Alexandroupolis oil spur. The spur would carry oil from Russia, across the Black Sea, and on to the Mediterranean through Bulgarian and Greece. In exchange, Transneft would step aside and allow Chevron, Exxon and their partners to approximately double CPC's size to 1.3 million barrels a day.

Moscow wants the Burgas-Alexandroupolis line as competition to the U.S. backed Baku-Ceyhan pipeline, the first major export line out of the Caspian Sea that skirts Russia entirely.

The companies rebuffed the CPC tariff increase. But in order to realize their original financial model, the companies still must expand Tengiz production to at least 700,000 barrels a day, and they have hoped to export as much as 1 million barrels a day and more. So far, their Plan B is far more expensive than CPC -- to barge a lot of crude across the Caspian to the Baku-Ceyhan line.