Azerbaijan's state energy company SOCAR and Russian state-owned oil company Rosneft are in talks on a possible reverse flow of Urals crude through the Baku-Novorossiysk northern route pipeline in the amount of 5 million tons per year.
If the talks succeed and the cost-effectiveness of operations under consideration is approved, part of the oil will be processed in Azerbaijan, and some of it will be delivered via the Baku-Tbilisi-Ceyhan (BTC) pipeline and shipped from the Ceyhan terminal in Turkey on the Mediterranean Sea. Evaluation of the effectiveness and the negotiations will be completed by late this year.
Urals -- a mix of heavy and high-grade oil of the Urals with light oil of western Siberia supplied through the Baku-Novorossiysk pipeline and the Druzhba pipeline system -- is traded on world exchanges at a price lower by $4 per barrel than the Azerbaijani crude.
SOCAR head Rovnag Abdullayev has said the parties are negotiating on possible transportation of a part of Urals crude oil via Baku-Tbilisi-Ceyhan pipeline, from where it can be delivered for processing at refineries in Italy and Germany, in which Rosneft has an interest.
Abdullayev said that the transportation of Urals via the BTC will not affect the quality of the oil shipped from Turkey's Ceyhan port.
SOCAR has set terms before Rosneft on oil pumping via the Baku-Novorossiysk pipeline in the reverse mode with a sulfur content of less than one percent, which does not affect the quality of the oil transported through the BTC oil pipeline, and will allow the shipment of Azeri Light oil from the Ceyhan terminal.
He said that the BTC is an effective pipeline through which Azeri Light crude oil, as well as oil from Central Asia, is pumped and, if economic expediency is ensured, Urals, which will be delivered via the Baku-Novorossiysk pipeline, will also be pumped.
According to the standing agreement, in case the program is implemented, the profits will be shared equally between the parties.
The parties intend to negotiate and evaluate the effectiveness of these operations by the end of 2013. Upon reaching an agreement, these operations could begin next year.
Rosneft will itself resolve the issues on operations relating to the oil transportation via Baku-Novorossiysk pipeline and the project realization with Russian oil pipeline monopoly Transneft.
The contract on the transit of Azerbaijani oil through the territory of its giant northern neighbor, which had been in effect for 17 years, was revoked in early May.
Russian Prime Minister Dmitry Medvedev earlier signed an order to revoke the intergovernmental agreement, which envisaged transportation of 5 million tons a year of Azerbaijani oil via the Baku-Novorossiysk pipeline for $15.67 per ton of oil transit. The Russian government explained the decision with considerable loss.
Azerbaijan transports around 2.5 million tons of oil through the pipeline on average. The volume of the Azerbaijani oil transportation via this route was 2.2 million tons in 2010, and 2 million tons each in 2011 and 2012.
Regarding other possible joint projects of SOCAR and Rosneft, Abdullayev said that the parties are interested in the implementation of projects in the area of trading operations.
Particularly, Rosneft takes great interest in the opportunities of SOCAR in Fujairah, UAE, Ceyhan, Turkey, in African states, Singapore, and other countries in which SOCAR has a storage capacity for oil products.
Referring to cooperation in mining projects, Abdullayev said that the two companies are interested in bilateral cooperation, with the main issue being economic feasibility.
Lately, Russia and Azerbaijan agreed to expand cooperation in the exploration and production of oil and gas, which is one of the important results of a working visit of Russian President Vladimir Putin to Baku. Russia also voiced interest in the development of the natural gas market in Azerbaijan.
Rosneft and SOCAR have signed an agreement on cooperation and main terms of oil transportation. Thus, the sides agreed to establish a joint venture on equal terms for projects in exploration and production of oil and gas in a number of countries, including Russia and Azerbaijan, as well as joint use of some pipelines and terminals.
The sides also agreed to cooperate in the marketing and sale of hydrocarbons and petroleum and sharing a number of infrastructure projects.
The Baku-Novorossiysk pipeline (also known as the Northern Route Export Pipeline) is an 1,330-kilometer oil pipeline, which runs from the Sangachal Terminal near Baku to the Novorossiysk terminal at the Black Sea coast in Russia.
The total length of the B?? pipeline, which carries crude oil from the Azeri-Chirag-Gunashli oil fields in the Caspian Sea to the Turkish Mediterranean coast, is 1,768 kilometers, including the 443 kilometer section running via Azerbaijan, the 249 kilometer section via Georgia and 1,076 kilometers via Turkey.