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21 Apr, 2009 06:04

Better quality crude for ESPO to bring in bigger profits

Russia says it will raise its oil quality to the international ‘Brent’ standard for the world's largest pipeline project, the E.S.P.O. Experts say that could bring Russian producers millions of dollars more in profit.

Russia's Energy Ministry wants to ban producers of lower quality crude from the East Siberian Pacific Ocean pipeline. Construction to the Chinese border's due to finish this week, and for Russia's quality producers that will make a big difference, according to Pavel Sorokin, Analyst at Unicredit Securities.

“Tatneft, Bashneft plus companies in the Volga-Urals region producing the heavier oil will suffer a big hit because they will have to search for alternative routes. For the companies which will participate in the ESPO and the offshoot to China, it's a significant step that should allow them to earn an extra $2 to $3 a barrel.”

With ESPO capacity to China at 600,000 barrels a day, that's an extra $600 million a year for Russian oil firms. Dmitry Lukashov, Executive director at UBS says Asia's energy deficit could mean it's even more.

"Any oil traded on the Asian market usually is traded at a premium to European markets."

Russian energy officials say improving quality can compensate falling production for the world's number two oil producer.