Transneft Says Extended Link Moves ESPO Oil Closer to Benchmark

A $23 billion pipeline across Eastern Siberia is moving Russian crude sold on the Pacific coast closer to becoming an benchmark, according to OAO Transneft, the country’s oil pipeline operator.

The East Siberia-Pacific Ocean pipeline, or ESPO, will officially open Dec. 25, doubling capacity via the Pacific port of Kozmino, Transneft President Nikolai Tokarev said today at a Moscow conference. A ceremony will be held in the Far East city of Khabarovsk, he said.

The pipeline, Russia’s most expensive infrastructure project, brought a new grade of oil to market when its first phase started at the end of 2009. It gives Russian oil companies the highest netback of any export direction, Transneft First Vice President Maxim Grishanin said. Netbacks are revenue from a barrel of crude minus production and transport costs.

The Russian crude is a “strong candidate” for an Asian benchmark, Steve McBain, a Singapore-based oil trading manager for Glencore International Plc. (GLEN), said Dec. 11 at a conference in the Southeast Asian city-state.

ESPO oil is trading at a premium of more than $4 a barrel to Dubai crude after having traded at a discount when the first phase began piping oil.

Oil traders in Asia typically price their crude as a differential to the average of Oman and Dubai grades. The two Arabian Gulf benchmark assessments are published by Platts, the energy-information division of McGraw-Hill Cos.

Transneft, Russia’s oil pipeline operator, plans to export 21 million metric tons of crude via Kozmino in 2013, up from 18 million tons this year, Katsal said. Volumes will rise to 23 million tons to 24 million tons in 2014 and reach full capacity of 30 million tons by 2015.

ESPO can become a benchmark within five years, Alexei Rybnikov, the head of the St. Petersburg International Mercantile Exchange, said at the conference.

“We have already created all the necessary conditions to achieve benchmark status for ESPO,” Deputy Vice President Igor Katsal said. “It has stable volumes and consistent quality.”

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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