Transneft designed the Baltic Pipeline System (BTS-2) nearly two years ago after a pricing dispute with Belarus briefly disrupted deliveries of Russian crude via the Druzhba pipeline to Poland and Germany. Since then, Russia has moved to an export capacity surplus as expansion has outpaced the growth in output and domestic refineries have been modernized. The route of the 1 million brl/d line will branch off from the Druzhba pipeline and go to Ust Luga near the largest Russian oil port of Primorsk, on the Baltic Sea. Initial estimates for the cost of the BTS-2 were around $2 billion, but have since been as high as double that. Its purpose has also evolved. Designed initially to avoid Belarus, it could also serve to divert crude from Ukraine and Poland amid strained political relations with both neighbours. Transneft's head, Nikolai Tokarev, told reporters in September that the company would stop sending crude to the Ukrainian ports of Odessa and Yuzhny, and Poland's Gdansk, in 2012 when it launches BTS-2's first, 600,000brl/d, phase. By then, Russia's first oil link to China should be at full capacity of 600,000brl/d, diverting West and East Siberian crude from its traditional European destination. However, Transneft still needs to find funding to finish building the Asian pipeline, and is understood to have been negotiating a $10-billion loan with China as part of a broader crude supply deal. "The main issue that continues to cause doubt about this project (BTS-2) is the economics of it," said Denis Borisov of brokerage Solid. "Transneft plans to sell rouble bonds to state banks to fund BTS-2, which means it will be competing for state money with other companies at a time when capital markets are virtually shut for Russia. "Both low and abnormally-high oil prices – of below $40/brl or above $100/brl – threaten the economics of the project," Mr Borisov said, becase "low prices lead to lower output, while high prices would push domestic refining margins up and discourage exports."