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Bringing Oil to the Market: Transport Tariffs and Underlying Bringing Oil to the Market Bringing Oil to the Market Transport Tariffs and Underlying Methodologies for Bringing Oil Cross-Border Crude Oil and Products Pipelines : Transport Tariffs and : TransportUnderlying Tariffs Methodologies forCross-Border Crude Oil andProducts Pipelines Pipelines play a significant role in the international crude oil and oil product logistics. to the Market They allow exploiting remote oil fields and are a much cheaper and more convenient means of oil and oil product transportation than railways. Pipelines are especially relevant for territories with no or limited access to the sea. Thanks to the construction of pipelines, the last two decades have seen the emergence of new suppliers on the world oil market. For the latter, secure and economical transit through third countries in order to access world markets is of critical importance. The key problems for pipeline transportation are the tariffs and the rules of access. In countries were oil transportation by pipeline has traditionally played a greater role, crude oil and oil products pipelines are often considered to be natural monopolies. Those countries often establish rules and tariffs for non-discriminatory access to Transport Tariffs and services. Tariffs are normally regulated and only in exceptional cases are negotiated. This study focuses on crude oil and oil products pipeline systems in Eastern and South Eastern Europe, the Caspian region and Central Asia. It considers: Underlying Methodologies - essential technical and economic elements, which influence costs of oil and oil products pipeline transportation; for Cross-Border Crude Oil - the methodology for calculating oil pipeline tariffs and the actual tariff rates; - where relevant, rules for access to existing and new cross-border oil pipeline systems; and Products Pipelines - treatment of pipeline transit against the background of the multilateral rules on transit established by the Energy Charter Treaty. Energy Charter Secretariat 2012 2012 Energy Charter Secretariat ISBN: Boulevard de la Woluwe, 56 . B-1200 Brussels, Belgium Charter Energy 978-905948-112-1 (English Paperback) Tel.: +32 2 775 98 00 . Fax: +32 2 775 98 01 978-905948-113-8 (English PDF) E-mail: [email protected] . www.encharter.org Energy Charter Secretariat 2012 Bringing Oil to the Market Transport Tariffs and Underlying Methodologies for Cross-Border Crude Oil and Products Pipelines Energy Charter Secretariat 2012 Disclaimer Information contained in this work has been obtained from sources believed to be reliable. However, neither the Energy Charter Secretariat nor its authors guarantee the accuracy or completeness of any information published herein, and neither the Energy Charter Secretariat nor its authors shall be responsible for any losses or damages arising from the use of this information or from any errors or omissions therein. This work is published with the understanding that the Energy Charter Secretariat and its authors are supplying the information, but are not attempting to render legal or other professional services. © Energy Charter Secretariat, 2012 Boulevard de la Woluwe, 56 B-1200 Brussels, Belgium ISBN: 978-905948-113-8 (English PDF) ISBN: 978-905948-112-1 (English hard copy) Reproduction of this work, save where otherwise stated, is authorised, provided the source is acknowledged. All rights otherwise reserved. Foreword Foreword Pipelines play an important role in bringing crude oil from its source to the global market. The majority of internationally traded oil may be delivered by marine tankers, but pipelines often represent the only economical means of transport for the oil to reach sea ports or centres of consumption. This is particularly true in the case of remote oil fields and land-locked territories. Additional risk can be implied when oil or oil products need to cross borders or transit countries on their way to the market. This may explain the special role of pipeline transportation in Eurasia as well as some fundamental choices with regard to its regulation. This role has also been the reason for the interest in a binding multilateral framework, as it has been established under the Energy Charter Treaty of 1994. Rules on access to pipelines and the methodologies to establish transportation tariffs are crucial factors determining whether oil and oil products are able to reach markets at a competitive price. The present study reviews the arrangements applicable to main export and cross-border pipelines in Eastern and South Eastern Europe, Russia, Central Asia and Turkey. It analyses methodologies as well as actual tariffs for selected crude oil and oil product pipelines in the given countries. This study represents an updated and extended version of a publication that the Energy Charter Secretariat made available in 2007. It was prepared by the Directorate for Trade and Transit of the Energy Charter Secretariat and has further benefited from discussions in the Energy Charter’s Trade and Transit Group. The study is published under my authority as Secretary General and is without prejudice to the positions of Contracting Parties or their rights or obligations under the Energy Charter Treaty or the WTO Agreements. Urban Rusnák Secretary General Brussels, 29 March 2012 3 Table of Contents Table of Contents Foreword .....................................................................................................................3 Executive Summary ...................................................................................................6 CHAPTER 1. Introduction ...........................................................................................9 1.1. The Significance of Pipeline Transport and Transit.............................................................. 9 1.2. Transit in International Law: from GATT to the Energy Charter Treaty ........................ 9 1.3 The Object of Investigation ........................................................................................................ 11 1.4. Sources .............................................................................................................................................. 11 1.6. Abbreviations and Acronyms ....................................................................................................13 CHAPTER 2. Oil Transport Tariff Methodologies for Cross-Border and Transit Flows ........................................................................................15 2.1. Introduction .....................................................................................................................................15 2.2. Allowed Profitability ....................................................................................................................17 2.3. Cost-of-Service Methodology ..................................................................................................19 2.4. Negotiated Tariff ............................................................................................................................19 2.5. Difference between Cross-Border and Domestic Pipelines ..........................................20 2.6. Transit Tariffs ...................................................................................................................................20 CHAPTER 3. Access to Cross-Border and Transit Pipelines ...................................22 3.1. Introduction .....................................................................................................................................22 3.2. Russia .................................................................................................................................................22 3.3. Kazakhstan ......................................................................................................................................23 3.4. The CPC .............................................................................................................................................24 3.5. Ukraine ..............................................................................................................................................25 3.6. Belarus ...............................................................................................................................................25 3.7. Azerbaijan-Georgia .......................................................................................................................26 3.8. Access to Oil and Products Pipelines in East-European Countries and Turkey .......... 26 CHAPTER 4. Transport Tariff Methodologies for Domestic, Cross-Border and Transit Pipelines in FSU Countries, Turkey, Romania and Croatia ......28 4.1. Russia ..................................................................................................................................................28 4.2. Ukraine ..............................................................................................................................................34 4 Table of Contents 4.3. Belarus ...............................................................................................................................................36 4.4. Kazakhstan ......................................................................................................................................37 4.5. CPC .....................................................................................................................................................39
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