Money Smells Oil. Part II

Russia should export petroleum products, not crude

In fact, the export of resources and the import of the goods made of those resources is a trivial scheme of the economic enslavement applied toward third world countries. It seems that the people who are traditionally considered the cream of the Russian business society are please with this process gathering steam in Russia. No one asks the Russian people anything. They think that people do not understand anything about international trade. Moreover, it is believed that such actions are dictated by the business logic. Of course, Russian oligarchs will never acknowledge that they are not capable of anything in this important business area.

According to Russian law, the people have a right to call for a referendum to express their opinion. Yet, no one will venture to hold the referendum on the single question of: do people want Russian crude exported to Poland for $300 per ton and to import the European petrol from Poland for 1,000 euros per ton? The result of such a referendum is obvious. Soviet people voted for the preservation of the USSR, but the union collapsed.

Russian companies continue to export cheap natural resources and import expensive European goods. It is not only about the Russian crude - such things are happening in almost all branches of the Russian economy. The majority of aluminium cans used as the packaging for the Russian beer products are made at a Polish factory built by a well-known Swedish firm. The aluminium for the factory is delivered by offshore companies which own shares in one of Russia's largest aluminium enterprises. Other offshore companies purchase alumina from Russia at domestic prices, deliver it to Russian aluminium factories to produce the aluminium for a foreign client, which will then be sold to a Polish factory. A third offshore firm will deliver the cans to Russian beer producers, later with Russian beer sealed in them. On top of this, Russian beer is made of the European malt and hop.

The globalization of the world economy is taking place before our very eyes. The new system of the international division of labor is being formed. Russia is doomed to play the role of a natural wealth source for the developed countries. Do Russians agree upon such a role? Do Russia's authorities understand that the oligarchs they have created are in fact working against the country's best interests? Their only goal is to become even richer. Russian officials most likely realize this, but the oligarchs have the enormous wealth and control public opinion. Are the authorities even attempting to change this situation? The answer is yes, but it is happening slowly. Last year, Vladimir Putin had a meeting with Rosneft's CEO Vladimir Bogdanchikov. As it became known that the president was discussed the above-mentioned issue with the businessman: to export petrol from Russia instead of the crude.

The company Rosneft is currently working on the complex for shipment of petroleum products. The initial annual capacity of the complex has been estimated at 4.5-5.5 million tons. In association with another oil and gas company, Surgutneftegaz, Rosneft is building a new refinery in the town of Primorsk. The annual capacity of the new refinery has been evaluated in ten million tons of oil. Primorsk is the final point of the Baltic pipeline system. Vladimir Bogdanchikov has invited TNK, Yukos, Sibneft and Lukoil to participate in the project. None of them has expressed any interest in the project. Surgutneftegaz is developing the capacity of the Kirishy-based refinery from 18 to 24 million tons a year. These projects will make it possible to export about 20 million tons of petroleum products.

From the point of view of volumes and costs, the projects connected with the export of petroleum products fall behind the construction of pipelines to export the raw materials to the USA, China and Japan. Yet, the projects do not require the participation of the state, there is no need to assign billions of dollars from the budget either. In addition, Rosneft's Far Eastern project allows the country to save almost eight billion dollars. According to experts' estimates, this is the cost of the pipeline construction Angarsk-Daqin. However, as it turned out, there is no need to build the pipeline.

The project by Rosneft will provide the competitive infrastructure for the export of petroleum products. Processing capacities in Western Siberia and in the Zabaikalye region are sufficient. In addition to Rosneft's refinery in the city of Komsomolsk-na-Amur, there are other factories in the region. The refineries in Angarsk, Achinsk and Khabarovsk are at only 30-50 percent capacity.

The total capacity of all Russian refineries is estimated at 320 million tons. However, these refineries process only 180 million tons of crude. The reserve stands at 140 million tons, although the figure should increase to 150 million tons, taking into consideration the Rosneft and Surgutneftegaz projects. It is almost one and a half times as much as the total capacity of the export projects to be built in the future, including the Angarsk-Nakhodka pipeline.

Oligarchs-controlled media write that Rosneft, Surgutneftegaz, Gazprom and Lukoil are attacking oil giant Yukos. Western media believe that those companies are owned by special services, that is why they are threatening both Russian democracy and national security of the US. However, the Russian president simply suggested a slight correction of working methods applied in the national fuel and energy complex: to partially substitute crude export with the export of petroleum products. It goes without saying that there is an opportunity to increase both the competitive advantage of the Russian oil and gas industry, budgetary revenues and the GDP.

American businessmen do not like such steps. American companies receive the lion's share of world oil processing profit and they need cheap Russian crude. YukosSibneft, TNK-BP and several other Russian companies are ready to deliver that cheap oil. Does this economic policy correspond to Russia's interests?

It is impossible to continue the increase of the oil extraction forever. Oil deposits will eventually be exhausted and oil prices are expected to decline. If Russia increases export of high-quality petroleum products, profits will be enhanced without an increase of the crude extraction. When oil prices drop, it will not be a national tragedy either for Russia or for the Russian budget. However, what will happen to the leadership and the capitalization of such companies as YukosSibneft?

It is generally believed that Mikhail Khodorkovsky, the leader of the Russian oligarchs, is a very bright person. Why he cannot understand that his oil empire would be even more attractive and more powerful if the primary surplus value was based on the oil processing - not in Poland or Ukraine, but in Russia.