The Fuels and Energy Technology Development Institute (IRTTEK) asked experts if it was worth while to make Transneft the only oil quality controller in Russia. The problem has been discussed since the 2019 incident, when a great amount of petroleum was recognized off-spec due to presence of chloroorganic compounds in the Druzhba pipeline system. And last June, Transneft was able to prevent another major contamination, localizing chlorine-contaminated oil at the Mukhanovo oil pumping station in Samara region, Russia. The consecutive discussion and the recommendations suggested by its Russian and international participants resulted in the report on“Crude Oil Quality Monitoring: Expert Discussion” (see list of participants below).
-Alexey Gromov, Principal Director on Energy Studies at the Institute for Energy and Finance;
-Sergei Kaufman, analyst at FINAM investing group;
-Alexander Kurdin, vice-head for Science Research at the Economic Faculty, MSU, Research head at the Russian Analytical Center’s Department for Expert Analytics;
-Stanislav Mitrakhovich, expert at the National Energy Security Fund (NESF), scholar at the Financial University;
-Rustam Tankaev, counselor to the President of Council of the Union of Oil & Gas Producers of Russia, CEO at Info TEK-Terminal;
-Igor Yushkov, senior analyst at the National Energy Security Fund (NESF), expert at the Financial University. International experts:
-Miguel Jaimes, political scientist, MSc in Political Science, Doctor in Administration, director of an international petro-geopolitical project, director at geopoliticapetrolera.com (Venezuela).
The majority of the experts said they believe Transneft should be able to control the quality of oil that enters the main oil oil pipeline system. The main argument is that Transneft had been made the responsible for the incident, having to pay the compensations too. “If Transneft is responsible for the quality of oil that is inside the pipeline, that is received by a Russian or a foreign customer, let it exercise control too. Doing the other way is strange and wrong”, Igor Yushkov, senior analyst at the National Energy Security Fund, expert at the Financial University, said.
The pipelines’ owner responsibilities should be equilibrated by possibilities, Alexander Kurdin, vice-head for Science Research at the Economic Faculty, MSU, Research head at the Russian Analytical Center’s Department for Expert Analytics, agrees. He adds though, that if Transneft were recognized as the only quality controller by law, the same law should make it the only entity responsible for this quality. Alexey Gromov, Principal Director on Energy Studies at the Institute for Energy and Finance, mentioned the existing conflict of interest between that pipeline monopolist and oil suppliers.
“When the main pipeline system operator receives the entire quality control of oil entering this system, the function might be abused indeed”, he states. Differently, Rustam Tankaev ,counselor to the President of Council of the Union of Oil & Gas Producers of Russia, CEO at Info TEK-Terminal, believes that not only the controlling function should be granted to Transnet, but also the authority to divide oil streams by quality.
The essential question is finding the balance between the functions a natural monopoly should possess and those that other business segments could exercise, was the conclusion made by Stanislav Mitrakhovich, expert at the National Energy Security Fund, scholar at the Financial University. The 2019 incident that happened and the 2021 incident that could have happened are facts that can not be forgotten, nonetheless questions of security and development of the industry could be judged more important than free competition, he added. Alternative scenarios were also discussed: transferring the controlling powers to the State and supplying oil stations with equipment that permits real-time quality control, stopping pumping authomatically if the permissible exposure limit of contaminating substances is too high. The experts were unanimous in turning them down as inviable both technically as well as economically.
Around the world, countries choose different options. In Poland and Argentina for example, the responsible entity is the pipeline infrastructure operator. In Nigeria and in Belgium, governmental structures are charged with it. For Russia, an optimization of the existing model could be the best option. Still, it is necessary to centralize the control in order to maximize the competitive advantage, and a law is necessary to formalize it. Transnet is the best candidate to the role of controlling center, as it is already performing these functions, the authors of the report conclude