Russian tanks invade, fill U.S. cars with fuel

Lukoil: Its second-largest oil company helps Russia become an alternative to OPEC nations.

December 18, 2003|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

NEW YORK - Anthony D'Alessandro was filling up his van at 10th Avenue and 24th Street the other night as the Beach Boys' "Little Saint Nick" pealed from the speakers and motorists hopped into the Kwik Farms store for coffee and Krispy Kremes. Nothing remarkable about that for an evening rush hour in Manhattan.

Except that the gas station, recently outfitted with a distinctive red-and-white logo, is owned by an oil giant called Lukoil, and Vladimir V. Putin, the president of Russia, came to its grand opening this fall.

For anyone old enough to remember the Cold War, Lukoil's push into the U.S. market brings an unusual twist to the international energy scene: Ordinary Americans are buying gasoline from the Russians at the station down the street.

Lukoil, Russia's second-largest oil company, bought up 1,300 Getty gas stations from Massachusetts to Washington, D.C., three years ago and has been slowly rebranding them with its spiffy red-and-white trademark. Nineteen stations, including one in Georgetown, have been converted, and 80 or more are due for face-lifts by 2005.

"As children we were told the Russians were the big bad bullies, and they had us climbing under our desks," said D'Alessandro, an elevator repairman from Levittown, N.Y.

"But before this we've been buying gas from the Arabs and they're screwing us left and right," he said, referring to the Saudi-born hijackers responsible for the Sept. 11 attacks. "The way I look at it with the gas industry, they all rob us."

Lukoil's foray into East Coast gas stations is part of a larger plan to sell oil in the United States. By fall 2004, the company expects to begin importing Russian oil to supply its stations, which buy gasoline from various countries, sold by vendors in New York's harbor, said company spokesman Donny Furst.

Lukoil is the most internationally active of Russia's oil companies, an industry that emerged in the tumultuous post-Soviet early 1990s when a small group of businessmen (now known as oligarchs) exploited the leadership vacuum and took control of the formerly state-owned energy apparatus.

World's top oil producer

But Russia's oil industry in general has only recently surfaced as a major international player.

It is now the world's largest oil producer, pumping 8.5 million barrels a day - more than Saudi Arabia, which has the world's largest known reserves. Saudi Arabia, which pumps 8.3 million barrels a day, can produce 10.4 million barrels a day, but its production is limited by the Organization of Petroleum Exporting Countries, which sets quotas to keep prices stable.

Transportation limits

However, Russia is severely limited in what it can export because it lacks the infrastructure to transport its oil. As a result, it exports only 5 million barrels a day, compared with Saudi Arabia's 7 million barrels.

Putin and Russia's oil chiefs have told Washington they can eventually provide 10 percent of U.S. import requirements, which would rank Russia with Venezuela as the No. 4 U.S. supplier.

The prospect would warm the hearts of many Americans concerned about overdependence on oil from Middle Eastern countries and other OPEC members, which provide about 47 percent of U.S. oil imports.

But before Russia can deliver on that promise, it needs to build a pipeline from the west Siberia fields to the northwestern port of Murmansk on the Barents Sea.

Lines on the current state-owned pipeline network, Transneft, are filled to capacity. Oil companies are so desperate for transportation that they are shipping oil in railroad tanker cars, drastically increasing costs.

Political conflicts

The pipeline project, however is mired in a politically charged debate over who will pay the expected $4.5 billion construction cost and who will own it - Transneft or a consortium of Russian and Western oil companies.

The transpiration problems, including the lack of deep-water ports capable of handling supertankers, "are the key issues limiting oil trade between the U.S. and Russia," said John Webb, a specialist in Russian energy at Cambridge Energy Research Associates in Cambridge, Mass.

U.S. offers help

The Murmansk project, which could account for as much as 5 percent of U.S. oil imports, has so enticed the Bush administration that two members of the President's Cabinet went to Moscow recently to lobby for the pipeline and port, and Commerce Secretary Donald L. Evans urged Russia to allow U.S. companies to participate.

But the project is only one of several under consideration. At the moment the priority seems to be a Transneft proposal to expand export capacity in the Baltic Sea region, said Julia Nanay, an expert on the Russian oil industry at PFC Energy, a consulting firm in Washington.

"In some sense it's a competition between the private sector and state-sponsored oil transportation system," Nanay said.

Arrest hinders exports

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