Russia Starts Oil Pipeline to China as Putin Looks to Diversify

Oil Pipeline and Worker Operating ValveDec. 31 (Bloomberg) -- Russia will start its first oil pipeline to China at midnight, increasing crude exports to the world's largest energy consumer.

OAO Rosneft, Russia's largest oil producer, and state-run pipeline operator OAO Transneft will sell China 15 million metric tons (110 million barrels) a year for 20 years through the East Siberia Pacific Ocean pipeline, known as ESPO, after China provided the companies $25 billion in oil-backed loans to finance construction and development of deposits.
[image adapted from original copyright (c) 2010 RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036]

Russia currently supplies crude to China by rail and shipped 1.06 million tons in November, making it the Asian country's seventh-largest supplier, according to Chinese customs statistics on Bloomberg.

Prime Minister Vladimir Putin has said the $26 billion project will diversify the delivery of Russia's natural resources beyond Europe. Russia also hopes the pipeline will unlock millions of barrels of resources trapped in remote deposits along its path.

"Asian oil buyers clearly gained," Ed Chow, a senior fellow at the Center for Strategic & International Studies, said by e-mail. China won't pay a premium for the crude, and the cost of the pipe will be distributed among Russian oil producers, he said.

The ESPO pipeline when completed in 2014 will span about 4,700 kilometers (2,900 miles), longer than the distance from London to Tehran. It will carry oil from Taishet, beyond the west Siberian basin where most of Russia's oil is produced, to Russia's Pacific port of Kozmino.

Daqing Spur

Transneft completed construction of about half the pipe's length, to Skovorodino in eastern Siberia in 2009. From there a 1,024 kilometer spur extends to Daqing in northeast China.

The Moscow-based pipeline operator doesn't now plan to accommodate a Chinese request to double delivery volumes, Transneft President Nikolai Tokarev said in September. Transneft has directed the Chinese to buy additional supplies at Kozmino, Transneft spokesman Igor Dyomin said by e-mail.

Kozmino, currently supplied by rail, loaded 15 million tons of ESPO blend oil this year as of Dec. 25, the port said in a Dec. 28 statement. Transneft plans for the port to carry the same amount next year, Dyomin said. The link's capacity may be raised to 50 million tons in 2013 from the current 30 million tons, according to a Transneft development plan.

Russia will probably send less crude to Europe as a result of the Asia link, Transneft's Dyomin said.


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