Transportation of Oil: Are competitors more terrible than the crisis?

26.06.2009 (18:47)

The figures for the five months of this year shown by the oil sector looked very hopeful against the background of many other cargoes’ transport figures. Meanwhile, the volume of “black gold”, which is travelling by the road, is still influenced not only by the crisis, but by high competition from other types of transport. Who will have the last word, the pipe, the river or, again, the road?

From January to May 2009 more than 94.9 million tons of oil and oil products were carried by the Russian railway network. This was about 3.6% less than for the similar period of 2008. So the negative figures for oil look absolutely insignificant against such a general background. Compare: the decrease in the amount of coal transported for the first five months of 2009 was 17 %, in comparison with the period from January to May of the previous year, of chemical and mineral fertilizers – 19.5 %, ferrous metals – 33.5 %, coke – 38.3 %, construction cargoes – 45.3 %. We should like to remind you that the total loaded for the period from January to May was 24.9 % down on the figures for the similar period in 2008.

Oil cargo transits started to fall in November last year. At that time, after quite optimistic results in September and October (+1.8 % and +2.1 % compared to September and October 2007) oil fell by 0.7 %. And in December it simply collapsed - 8.7 % down. However, from the beginning of this year loading figures have been slowly, but truly reviving. In January the negative parameter was -7 %, in February it was – 7.2 %, and March it became – 3.9 %. In April the difference was 2.4 % less than last year, and the fifth month’s oil loading graphs were already positive – the results of May were 2.9 % better than May 2008.

The first few months of 2009 confirm the new trend: domestic crude oil movements prevail over exports. Before, the situation was the opposite. So, according to RZD’s Freight Traffic Marketing and Tariff Policy Department, the sending of crude oil cargo to refineries by domestic routes has grown by 9.9 % over the period from January to April.

Altogether it was noticed that exports of oil products have grown by 3.3 %. And if transit movements through overland border points have grown by 8.2 % over this period, in ports they have decreased a little, by 0.2 %. It is a paradox, but in this case the consequences of the crisis provided the reason for export growth. Analysts think that first of all, it is the growth of Russian oil refinery plants’ competitiveness on the world market because of the devaluation of the Russian rouble, and, secondly, it is the fall in world oil prices. Because of this Russian enterprises have had to export more oil products in order to fulfil their target plans in monetary terms.

As regards the main routes of oil exports, here marketing experts have noticed that all of last year's tendencies have remained unchanged. Thus 91% of all petro-cargoes go abroad, 89 % of them are oil products, and 11 % is crude oil. As before, the main importers are the Netherlands (30 %), Italy (19 %), China (9 %) and Switzerland (8 %).

At the same time, exports of petro-cargoes to the CIS countries reduced. They fell by 24 % over the first four months of 2009, in comparison to the similar period of 2008, and their share of the total amount of oil transits is about 8 % today. Nevertheless, Russian oil consumers in CIS countries remain the same as before: Belarus - 34 %, Kazakhstan - 33 %, Kirghizia - 13 % and Ukraine - 11 %.

In the opinion of experts, apart from the economic crisis, the decrease in oil cargo transits on the network is also caused by high competition from alternative types of transport. Railways are still less in demand than rivers and pipes. So, it seems that the issue about removing crude oil from wheels, which has been actively discussed over the last few years, has already received its unequivocal answer. Experts are sure that the future belongs to pipelines.

The main role in the alignment of forces will belong to the orientation of the transport system to large-capacity exports, and it is not only just oil, but oil products as well. Besides, in the opinion of the Director of RZD Freight Traffic Marketing and Tariff Policy Department, Vyacheslav Petrenko, railway transport is less competitive than pipelines in terms of price parameters. Usually rail transport is used for transportation, either in directions where there is no opportunity to transport petro-cargoes by pipelines, or when it is necessary to preserve production quality.

However, if for pipes, as they say, “the game is over”; for rivers, road will still “compete”. Traditionally, during the navigation season, in the service regions for such main destinations as Moscow, Northern, Kuibyshev, North-Caucasian, etc., oil cargoes "change" for water transport. Thus, Privolzhskaya Railway (PrivZhD), where river transport is the main competitor for the export of oil and oil products, gives the following statistical figures. "During the last year’s navigation (from April to November) oil refining enterprises shipped about 30 % of production by water, and the remaining 70 % by railway transport. Over the period from December to March all oil cargoes were moved by railway,” notes the Director of the PrivZhD Marketing Department, Farid Khusainov.

Simultaneously OAO RZD’s figures show that during the 2008 navigation period 30% more oil cargo than in the previous period moved from the railways to rivers.

By the way, one can notice, that this year the loading of oil and oil products on the network fell by 8.7%. Experts are inclined to explain it by seasonal factors – both repair works at oil refining plants, and the beginning of the navigation season.

In this situation, again, the reason of everything is prices. The main competitive advantage of rivers is the low freight rate. “The opportunities to lower tariff rates are limited on the railways in comparison to river transport,” says Mr. V.Petrenko. “The cost of river transport is considerably lower than on the railways. The main reason is that water transport doesn’t have the costs of infrastructure maintenance.” Moreover water transport companies can suggest (and are suggesting) lower prices because they are not regulated by the state. For example, according to the Volga Branch of the Company’s Railroad Service Centre, several years ago river tariffs were between 15% and 20% lower than those of the railways, and today this gap has increased to 40-60%, and in some directions, if we also consider those transports which proprietors make in their own tankers, the difference is already 80%.

In their turn, experts from the Gorky Railway Branch of the Company’s Railroad Service Centre are proving that by the example of their region, competitors have their own weak sides. Thus not each cargo sender has access to pipeline transport. For example, many large oil refinery companies from many regions use the pipeline “Sever”, which belongs to AK Transnefteproduct and which is partly located on Gorky Railway’s territory. But the main shortcoming of river transport, as marketing experts think, is its seasonal mode, the unsatisfactory conditions of river routes and of the whole river fleet.

It is not possible to predict evenly how the situation on the rail oil and oil product transport market will develop further this year. Some experts still suppose that oil cargoes will remain relatively stable though, and that they will stay the main cargo for transportation by rail. There are some estimates that in 2009 it is possible that there will be a small fall (by 1.5%) in oil transits in comparison with the previous year. Other experts see more optimistic prospects. They think that it is exactly oil which will keep, and even increase, railway cargo transits both during the crisis and after it.

Olga Gorbunova
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