INTERVIEW - Williams Mulls Doubling Butinge Capacity

Updated 7:30 AM ET February 3, 2000
VILNIUS, Feb 3 ( Reuters )

U.S. energy group Williams said on Thursday it was seriously considering doubling the 160,000 barrel per day capacity at the Lithuanian Butinge oil terminal to make Western crude imports more commercially viable.

Williams International President John Bumgarner told Reuters on the sidelines of a power sector investment conference that the idea would be to put in a second buoy and another pipeline from the refinery in Mazeikiai to the coastal terminal to allow near simultaneous import and export of crude.

When asked how seriously the company was in considering this idea, first floated at a meeting with Lithuanian parliamentarians on Wednesday, he said: "Pretty seriously." Lithuania's key oil concern Mazeikiu Nafta, in which Williams bought a 33 percent stake and operational control last autumn, is composed of a refinery, pipeline system and oil terminal.

Due to interruptions in Russian crude supply and difficulty in sealing new contracts, the refinery was forced to shut several times last year and has imported three tankers of Western crude for refining in recent months.

Although the Butinge terminal can import as well as export, doing so obviously limits the amount of Russian crude that can be shipped westward. A second buoy and pipeline would allow both export and import to run at or near the over eight million tons per year capacity.

Construction could take a year to 18 months, Bumgarner said, with the cost well below the over $300 million Lithuania spent building Butinge. "It depends on how much tankage you put with it, (it could cost) less than $50 million," he said.

Officials had earlier said importing Western crude at Butinge was a loss-making exchange, but Bumgarner said the financials were viable. "(Importing) doesn't make as much money as (refining) eastern oil, so to that extent you are taking a loss. But from the financial side you are still making a profit," he said.

Sources close to the refinery told Reuters that the fourth tanker to deliver Western crude was expected within the next few weeks, although Russia's Yukos YUKO.RTS -- a major throughput supplier for Butinge -- had recently supplied some 100,000 tons to the refinery.

Mazeikiu late last year accused LUKoil LKOH.RTS, Russia's crude oil coordinator for Lithuania, of blocking supply deals with other companies. Officials have been watching the Yukos batch closely to see whether it would be held up in Russia.

Bumgarner said talks with LUKoil over a long-term supply agreement were "tricky" as they were both supplier and customer. LUKoil Baltija has a substantial petrol station network in the region fed largely with refined product from Mazeikiu Nafta.

Sources close to the talks say they have recently grown strained because LUKoil has returned to the issue of having equal ownership in the Lithuania firm with Williams, something the U.S. company has ruled out.

However, as part of the privatization, the government's contract with Williams includes a clause that allows up to 30 percent duties placed on oil products imported from CIS countries, which could hurt LUKoil if it loses Mazeikiu as a retail supplier of fuel.

Asked if he was hopeful on sealing a deal, Bumgarner said: "I'm a very patient person."

Mazeikiu Nafta contributes about 10 percent of the country's gross domestic product (GDP) and analysts say stable and growing operation of the facility is a cornerstone to Lithuania's economic recovery.


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