Moscow, 18 May 2000; A group of key players in the Russian energy sector have announced plans to launch a major new electronic exchange, Energy Trade System (ETS), a step which will lay the foundations for a revolution in the energy trade in Russia. The founding partners are the Russian Ministry of Railways, pipeline operators Transneft and Transnefteproduct, fibre optic cable operator TransTeleCom Company and Sibneft.
The venture will initially focus on the creation of an electronic marketplace for refined products on the Russian domestic market, and it may then be expanded to embrace exports to the Mediterranean market. ETS will later extend its reach to embrace trade in crude oil on both the domestic and export markets.
The founders also plan to take steps to facilitate the creation of electronic marketplaces for natural gas and electricity, and they hope to make ETS the foundation for the first Russian energy futures market. The partners will also work to develop a platform for the purchase and sale of equipment and services for the oil and gas sector. In the longer term, they hope to establish the first market for trading bandwidth in Russia.
The partners expect investment in the new venture to total around $100 million. The exchange will operate as an independent structure and will be open to all market participants. The founders will retain a consulting company to develop the detailed business plan for the development of the new marketplace, and will also bring on board a technology partner to develop state-of-the-art infrastructure. The project enjoys the full support of the Russian government.
The venture is the first of its kind in the Russian energy sector, and aims to revolutionize the way crude and products are sold on the Russian market. The marketplace will increase transparency and liquidity on the market, bringing benefits for both buyers and sellers. The exchange will also simplify the settlements process, reducing transactions costs and facilitating an increase in the number of market participants.
The Russian market for refined products is highly fragmented with limited flows of products between various regions. The founders hope that the new marketplace will open the door to greater integration between various markets, increasing market efficiency through greater arbitrage. Russia produces approximately 6.3 million b/d of oil, of which some 3.6 million b/d is refined with the balance being exported.
In parallel with the creation of the new marketplace, Transneft plans to step up efforts to create a quality bank, a system under which producers pay a penalty or pocket a premium according to the quality of the crude oil they pump into the pipeline network. The creation of a quality bank will lay the foundation for the development of a more open market for crude on the domestic market.
The venture will be governed by a coordinating committee headed by Sibneft president Eugene Shvidler. “Through this ground-breaking initiative, the founding partners will play a central role in revolutionizing the way energy markets function in Russia,” Shvidler commented.
“Russia has long suffered from a lack of transparency, and poorly functioning and inefficient markets have had a detrimental impact on economic growth. The founders share a common vision for harnessing the new opportunities offered by electronic marketplaces to radically change the way that energy is bought and sold in Russia.”
The Ministry of Railways (www.mps.ru) operates Russia’s rail network.
Transneft is the state-owned operator of Russia’s crude oil pipeline network.
Transnefteproduct is the state-owned operator of Russia’s network of refined product pipelines.
TransTeleCom Company operates a fibre optic communications network in Russia.
Sibneft (www.sibneft.ru) produces some 330,000 b/d from fields in Western Siberia. The company owns the 380,000 b/d Omsk refinery, the most modern refinery in Russia.