Russia, Chevron Approve $5.4-Billion CPC Oil Pipeline Expansion

The Caspian Pipeline Consortium partners agreed to spend $5.4 billion doubling the capacity of the oil link that runs from the Chevron Corp.-led Tengiz oil field in Kazakhstan to the Russian Black Sea.

The CPC partners, including Chevron, OAO Transneft, KazMunaiGaz National Co. and OAO Lukoil, plan to start building in the local spring and boost capacity to 67 million metric tons of oil a year in 2014, according to a statement from the group distributed today in Moscow.

Russia’s pipeline operator Transneft, the largest CPC shareholder with 24 percent, had previously withheld support for the expansion as the group’s oil producing partners sought lower shipping rates. The conflict eased after 2007 when Transneft successfully lobbied to increase the fees to $38 a ton.

The expansion of the 1,511-kilometer (939-mile) pipeline will be funded by revenue from the link, according to the statement. The group will keep the current transit rate, Chevron Vice President Ian MacDonald said.

CPC may also seek to borrow $800 million to $1.2 billion next year to fund the enlargement, Andrew McGrahan, a Chevron vice president, told reporters today in Moscow.

Revenue from the pipeline is estimated to reach $2.3 billion a year after the completion of the expansion, according to the statement, which placed company revenue at more than $1.1 billion last year.

Tengiz Exports

Chevron’s TengizChevroil venture, Kazakhstan’s biggest oil exporter, will be able to ship 30 million tons of crude a year through the link, said Irina Rybalchenko, a spokeswoman in Moscow for the San Ramon, California-based company. This will allow TengizChevroil to ship all of its current output through the link. Chevron is the largest non-state shareholder in CPC with 15 percent.

Lukoil will be able to ship 10 million tons of oil via the link with expansion, from 4 million tons currently, Osman Sapayev, head of Lukoil’s CPC unit, said in Moscow.

The expansion of the pipeline will not create significant additional tanker traffic through Turkey’s Bosphorus straits, MacDonald said. The oil will be transported in larger Suezmax tankers as opposed to Aframax tankers, he said.

Alternative pipeline projects, via Greece and Bulgaria or across Turkey from Samsun to Ceyhan, to allow Black Sea oil to bypass the Turkish straits to the Mediterranean have yet to reach investment phases.

Other shareholders in CPC are OAO Rosneft, Royal Dutch Shell Plc, Exxon Mobil Corp., BG Group Plc, Eni SpA and Oryx Caspian Pipeline LLC.

To contact the reporter on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net

To contact the editor responsible for this story: Torrey Clark at tclark8@bloomberg.net

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