Russian expansion into the European oil-refining sector will be carefully calibrated, according to Yukos. An Italian news report early this month claimed that a preliminary agreement has been struck between Yukos and ENI for the acquisition of 50 percent stakes in ENI refineries at Gela, Milazzo (Sicily) and Marghera (Venice). Yukos' head of corporate finance, Oleg Sheiko, has refused to confirm the report. He said that, before acquiring low-margin refining stakes, "Yukos has to get the ratio right between the price we pay for the asset and the volume and value of crude oil supply that the refinery will take from Yukos."

Yukos produced 6.429 million metric tons in October, passing LUKoil for the first time on the Russian oil-production ladder. Output growth at Yukos has been 18 percent this year, and is expected to be roughly the same in 2003.

According to Chris Weafer, oil analyst at Alfa Bank in Moscow, Russian oil producers are under pressure to find markets for this added output. "Every extra barrel of oil extracted from the ground in 2003 will have to be exported as crude or product because of zero net domestic growth, hence the importance of trying to develop direct export routes to the United States and Japan and the need for more downstream diversification into refineries both inside and outside Russia's borders." Weafer calculates that, by mid-2003, Russia will be exporting 1.2 million barrels per day more than it did 18 months ago. He confirms the race to sell this oil is global and intense.

According to Sheiko, the overcapacity of refining in Europe this year and the fall of refinery margins have generated "lots of projects on offer for us to consider."

In Italy, as elsewhere in Europe, he told IA, Yukos' "first priority is to secure long-term supply contracts for crude. Our second priority is to acquire minority stakes in refineries, so long as that leads to the first priority."

To establish beachheads for shipments to its export markets, Yukos has already completed the acquisition of the Mazheikiu Nafta refinery in Lithuania and has acquired a controlling stake in the Slovak Transpetrol pipeline transporting Russian crude into Germany. Mazheikiu cost Yukos $150 million and will secure an annual supply of 8 million tons of crude. Another 4 million tons will be supplied to the Lithuanian terminal of Butinge, Sheiko added. Revenue from the crude deliveries will be roughly 10 times the value of Yukos' investment.

According to Sheiko, he turned down a bid to buy into the Greek state refinery company "because the economics weren't there. The refining margins were too low, and the volume of crude supplies was not linked to the investments." He said that a similar calculation dictated Yukos' re-fusal to bid for the state stake in the Polish refinery at Gdansk. "We have our stand-alone project criteria, when we must take account of our cost of capital. The issue is to calculate the cost of investment in relation to the value of oil deliveries."

The pressure to secure markets for its oil output is also driving Yukos to accelerate planning to expand Russian infrastructure for shipping oil abroad. According to Sheiko, the two Yukos priorities at the moment are for a new crude oil terminal at Murmansk and for a new pipeline to China.

Transneft, the state pipeline monopoly, has told IA it will add 100,000 bpd in new capacity through its pipeline to the Primorsk port on the Gulf of Finland next year.

In October, Yukos began test shipments of large tanker volumes of crude from its terminal at Vitino through Murmansk port. "Transportation of oil using tankers of over 100,000 tons from Murmansk to Europe is indeed more cost-effective for the oil companies," said Kirill Portnov, an analyst at the Moscow-based Petroleum Argus Agency. He added that Yukos may test loading of very large crude carriers (VLCCs) at the same location. The route from Murmansk to the United States is shorter than the current route Yukos is using through the Mediterranean for its monthly shipments to Houston, Texas. Moscow industry sources told IA that VLCC operations from Murmansk are likely only if a new pipeline is built to deliver crude to the port and if a terminal is constructed to consolidate deliveries from several companies and sources and store it before shipping.

In a few days, Sheiko said, he will hold fresh talks with the China National Petroleum Corporation on the planned pipeline from the Yukos Siberian base at Angarsk to the northern Chinese petroleum terminal at Daqing. This outlet is projected to have a capacity of 400,000 bpd.

There is a saying in baseball that, if a playing field is built, the fans will come. The organizers of the Annual Russian Investment Symposium held in Boston, Massachusetts most likely believed that what works for baseball will work for the world of Russia-watchers – and for the business community looking to invest in Russia.

Up until this year, it seemed to work. This time around, things were different, and, from what IA has learned, there is doubt the Symposium has much reason to hold a seventh conference. What annoyed many of this year's participants was the high level of no-shows from prominent Russian political and business figures.

A few participants – who vowed never to attend again – told IA the conference organizers were most likely aware that many of the high-caliber individuals invited to speak had no intention of showing up. It is the big names that attracted participation in the past. It is the big names that constituted the playing field. Without believing that they will attend next year, it should not surprise if the fans aren't there either.