Viewing cable 05VILNIUS300

05VILNIUS3002005-03-22 12:28:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L  VILNIUS 000300 
E.O. 12958: DECL: 03/21/2015 
     ¶B. VILNIUS 1160 
     ¶C. VILNIUS 1521 
Classified By: Economic Officer Miguel Rodrigues for reasons 1.4(b) and 
¶1. (C) Mazeikiu Nafta General Director Nelson English and 
Vice Minister of Economy Nerijus Eidukevicius told us they 
are optimistic that Russian crude will continue to flow 
through the Transneft pipeline to Lithuania's Mazeikiu Nafta 
refinery through the end of the year, despite press reports 
to the contrary.  English said that the refinery has 
commitments to receive oil from Russian suppliers other than 
Yukos at about two-thirds its previous supply level, and 
noted that Mazeikiu representatives are currently in Moscow 
negotiating to secure the remainder.  Neither English nor 
Eidukevicius would speculate about the likelihood that Yukos 
may sell its 54% holding in Mazeikiu Nafta and relinquish 
management of the refinery, but local sources mention TNK-BP 
as a likely successor.  Lithuania's dependence on Moscow's 
consent to fuel its factories, not to mention fill its 
treasury, underlies the country's energy and economic 
vulnerability.  End Summary. 
Oil Still Flowing 
¶2. (C) Mazeikiu Nafta General Director Nelson English (an 
Amcit oil industry veteran) March 21 discounted recent press 
reports to the effect that the Russian-owned pipeline 
monopoly Transneft would refuse access to its export 
pipelines to Mazeikiu Nafta, beginning in the second quarter. 
 He said that Transneft informed his office that there is 
still "space in its pipeline" and that it intends to allow 
delivery of crude to the refinery for the rest of the year. 
English thought it "reasonably probable" that, beginning in 
April, the refinery will receive about two-thirds of its 
monthly crude nomination (600,000 tons).  To date, they have 
received their full monthly quota of 800-830,000 tons. 
Alternate Oil Suppliers 
¶3. (C) English stated that despite the sale of Yukos's 
largest production arm, Yuganskneftegaz, Yukos's Logistics 
and Crude Oil Group has met the company's supply commitments 
to Mazeikiu Nafta, mainly pooling resources from six to eight 
other Russian suppliers and with the assistance of Transneft. 
 (The press reports that Lukoil, Rossneft, TNK-BP, Sibneft, 
Slavneft, Surgutneft, and Tatneft are currently principal 
suppliers to Mazeikiu Nafta.)  Mazeikiu Nafta receives a 
small portion of its crude from the Yukos subsidiary 
Samaraneftegaz.  English expects Yukos Logistics and 
Transneft will continue to pull off this supply arrangement 
through the second quarter and beyond, although he observes 
from past experience that there may occasionally be 
disruptions, as occurred during an unanticipated supply 
interruption in February which halted production at the 
refinery for six days. 
¶4. (C) English stated that a Mazeikiu Nafta team will be in 
Moscow March 22 to discuss supply of the remaining 
200-230,000 tons of the refinery's monthly crude oil 
nomination.  He suggested that at least a portion of this 
amount may come in by rail. 
Pipeline Still Open 
¶5. (C) Economy Vice Minister Nerijus Eidukevicius is more 
concerned with the flow than the source of the crude.  He 
told us March 22 that Yukos has commitments with the GOL to 
bring in 4.8 million tons of crude annually.  Transneft has 
authorized shipment of 1.8 million tons of crude through its 
pipeline during the second quarter.  Eidukevicius, optimistic 
about supplies continuing, wouldn't speculate about future 
sources of oil. 
Yukos Pullout?? 
¶6. (C) Press reports quote a source close to Yukos as saying 
that the company is in informal talks with both TNK-PB and 
Lukoil.  English professed ignorance on the subject of a 
Yukos pullout.  Eidukevicius claimed (disingenuously, we 
think, because TNK-BP was in Vilnius in January for 
discussions with the Government), that Yukos has not 
approached the GOL to sell, and absent a Yukos decision, the 
GOL's "thinking" on the issue is "limited."  English noted 
his preference for a company with Western connections such as 
TNK-BP, rather than Lukoil, to minimize Kremlin manipulation. 
 Lithuanian Energy Institute Chairman Jurgis Vilemas, a 
respected energy expert, told us he expected TNK-BP will most 
likely be the owner of Mazeikiu Nafta in the near future. 
¶7. (C) Eidukevicius emphatically denied that Lithuania's oil 
supply issue in any way reflects Moscow's displeasure with 
President Adamkus's decision not to attend the May 9 
celebrations marking the 60th anniversary of the Second World 
War.  "If that were to be the case," he said, "Mazeikiu Nafta 
would not be getting any crude." 
¶8. (C) Official Lithuanians are keeping mum about a Yukos 
pullout, scrambling to keep the fuel pumps going, but the 
writing is on the wall.  While there appears no immediate 
threat to the oil supply, there is no guarantee from one day 
to the next.  It's unclear how much longer Lithuania will be 
able to cobble together sufficient supplies, and at what cost 
-- political and financial -- with its principal supplier 
under Kremlin attack.  Until now, substantial revenues for 
Russian companies and relatively good relations with Russia 
have secured the oil flow.  The GOL will work hard to keep 
the oil coming.