The Russian port of Ust-Luga, just across the border from Estonia, has become the most important fuel oil exporting port in the region.
Growing infrastructure investment at the port, along with government policies to encourage wet bulk trade through Russia's domestic ports have fared well for the once-quiet village, which saw its fortunes completely reversed after it loaded its first Urals crude cargo in the spring of 2012.
At the time of the collapse of the Soviet Union, most port facilities in the Baltic Sea region were outside of Russia.
The idea of redirecting Russia's foreign trade cargoes away from the ports of the neighboring states of Estonia, Latvia and Lithuania was raised a long time ago, but it has only come into effect in recent years.
Now, in compliance with the Strategy for the Development of Russia's Port Infrastructure by 2030 launched in 2012, the proportion of Russian foreign trade cargoes being transshipped through Baltic ports is to be reduced to 5% or less.
In the first half of 2016, Russian cargoes going to the ports of the Baltic states decreased to 6.94% of all transshipment volumes, according to Port News Russia.
INCREASING VOLUMES
Of all the key ports in the Baltic region, Ust-Luga has seen the largest increase in exports of fuel oil -- the first product to have been test-shipped from the facility back in 2011 -- over the second half of 2016, according to S&P Platts data.
The facility has gone from exporting just 395,000 mt of fuel oil in June 2015, to an average 1.75 million mt per month through the period November to January -- almost 61% of total fuel oil exports from all Baltic ports.
Some 1.29 million mt of fuel oil is already scheduled to leave the port in the first half of February, with traders suggesting that another 1 million mt could be shipped over the rest of the month.
Meanwhile, St. Petersburg, which used to be the main Russian fuel oil export terminal on the Baltic, has also lost some volumes to Ust-Luga, and is now the second most popular fuel oil export port, accounting for approximately 22% of total Baltic volume exported during the November to January period, with a monthly average of 488,403 mt of fuel oil leaving the port during the period.
On the other hand, previously active Estonian and Latvian ports -- such as Tallinn, Sillamae and Klaipeda -- seem to be losing their competitive edge to their Russian counterparts across the border. Estonia's largest port of Tallinn only accounted for 4% of total fuel oil exports in the November to January period, while Sillamae and Klaipeda mustered just 3% and 5%, respectively.
CHANGING POLICY
Frosty relations between the Estonian and Russian authorities have led Russia to slowly reduce the remainder of supply passing through Estonia, redirecting deliveries to Ust-Luga, according to oil traders.
"Russian and Estonian relations have been sensitive for a few years now, it's all so political," said one trader.
This goes hand-in-hand with the longer-term Russian policy of diverting the nation's Baltic oil exports away from Estonian, Latvian and Lithuanian ports to Russian ones in the region.
As a result, a number of smaller Russian ports -- such as Vysotsk -- have also seen a new lease of life of late.
Overall throughput at Baltic ports has been declining and was estimated recently at 2 million mt/month, less than half of total capacity.
"We are seeing a notable redirection from the Baltic ports," said one trader. "Volumes are seriously down."
Last year, Russian pipeline operator Transneft announced plans to stop diesel deliveries to Ventspils and Riga after 2018, but this January the company's first vice-president Maxim Grishanin said that some volumes are likely to continue moving via the route.
"Some major companies have contracts for diesel deliveries to the ports of neighboring Baltic states and some volumes would continue to be delivered there, by rail or pipeline," he said.
Over the last three years, exports of Russian oil products through the Baltic ports have been reduced from 21.8 million mt to 11.5 million mt, according to Balticvoice.ru.
But the publication added that Rosneft and Bashneft, in which Rosneft acquired 50% last October, continue to use the Baltic routes and are likely to continue to do so as the Baltic countries offer attractive discounts.
