China wants reduced rate for Russia's ESPO crude

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Sept. 13 -- Chinese officials believe their country’s imports of Russian oil via the recently launched East Siberia Pacific Ocean (ESPO) pipeline spur should be purchased at a lower rate due to the shorter distance it travels.

The ESPO line currently extends 2,700 km between Taishet in Eastern Siberia and Skovorodino near Russia’s border with China. A 2,000-km extension of the line is planned from Skovorodino to Kozmino on Russia’s Pacific Coast. East Siberian crude is now piped to Skovorodino, where it is transferred to rail cars for onward transport to Kozmino.

The Chinese say they want a lower rate because Russia’s ESPO blend travels just 67 km to China from the terminus of the main line at Skovorodino, while ESPO blend sold at Kozmino is carried by railcar some 2,000 km beyond Skovorodino.

"We believe it would be fair to purchase the oil from Rosneft at a price lower than that offered at Kozmino," an official of the state-owned China National Petroleum Corp. told Russia’s Interfax news agency. “The distance from Skovorodino to Kozmino is about 2,000 km, but just 60 km to the Chinese border.”

Russia’s Prime Minister Vladimir Putin last month launched the 67-km Russian section of the ESPO pipeline, saying its implementation “means stabilization of supplies and energy balance for China and for us it creates entry to new challenging markets (OGJ Online, Sept. 6, 2010).”

The Chinese segment of the ESPO, which will extend 1,000 km from Mohe on the Russian border to Daqing, is still under construction. But deliveries of ESPO blend crude are due in January 2011.

Up to now, the sale price was to be determined monthly based on the price of oil at Kozmino, with adjustments for any differential in quality.

Chinese objections over the pricing of the oil coincided with reports that Russia's OAO Gazprom Neft recently sold Sinochem International 100,000 tonnes of medium-sour ESPO crude for October loading from Kozmino.

Industry sources said that Sinochem paid a record-high premium for the oil, at 85-90¢/bbl to Platts Dubai front-month crude assessment, fob, after netback from the CFR price.

That price topped the earlier high achieved last month when Russia’s OAO Rosneft and Surgutneftegaz sold ESPO blend to Warly International and Glencore, respectively, at Platts Dubai crude plus 73¢/bbl, fob.

Russia’s first crude exports left Kozmino on Dec. 28, 2009, and have now reached 10 million tonnes, two thirds of the 15 million tonnes planned for 2010. Kozmino Port Authority officials said the terminal handles 9-13 tankers per month, with 14 expected in each of the months of November and December.

Meanwhile, in an effort to ramp up supplies even more, Russia's state-owned oil pipeline operator Transneft expects to sign an agreement this month with TNK-BP, Lukoil and Gazprom Neft to jointly finance the construction of a 240,000 b/d pipeline that will link additional oil fields to the ESPO line.

Transneft Pres. Nikolai Tokarev said the companies will set up a joint venture to finance the project, which is expected to cost $1.95 billion. To compensate the companies, Transneft will offer a discounted oil transportation fee.

Tokarev said the pipeline would extend from Zapolyarnoye in the northern Yamal Nenets region to Purpe. From Purpe, a further 430-km extension of the pipeline will be built to Samotlor in the Khanty-Mansiysk region, site of TNK-BP’s Samotlor oil field, one of the largest in Russia.

The Purpe-Samotlor link is scheduled to be launched in 2012 and will eventually carry crude from the Yamal-Nenets region into the ESPO line, for eventual supply to China and other markets in Asia-Pacific.

TNK-BP is likely to be the largest beneficiary of the pipeline project, according to analyst BMI. It said the Moscow-based firm “is expected to significantly ramp up its investment in Siberian mega projects now that its co-owner BP has shifted its emphasis to Russia following the disastrous accident in the deepwater Gulf of Mexico.”

Contact Eric Watkins at hippalus@yahoo.com.

Related Articles

West Cornwall Township hears from Sunoco Logistics

12/12/2014

Sunoco Logistics Partners outlined its safety systems during a West Cornwall Township meeting in Pennsylvania on Nov. 10.

ETP eyes larger capacity for planned Bakken pipe

12/12/2014 Energy Transfer Partners LP has launched a binding expansion open season to boost capacity on a planned pipeline system that would move oil from th...

Kinder Morgan to deliver natural gas to Corpus Christi Liquefaction

12/11/2014 Kinder Morgan Inc. (KMI) companies Kinder Morgan Texas Pipeline, Kinder Morgan Tejas Pipeline, and Tennessee Gas Pipeline Co. (TGP) have entered in...

Rosneft, Essar sign terms of oil supply agreement

12/11/2014 OAO Rosneft and Essar Energy PLC have signed key terms of an oil supply agreement in New Delhi. Rosneft said shipments to India may begin in 2015.

Barton introduces bill to remove US crude export limits

12/11/2014

US Rep. Joe Barton (R-Tex.) introduced legislation that would remove US crude oil export limits that have been in place for nearly 40 years.

BG agrees to sale of Australian gas pipeline to APA Group

12/10/2014

BG Group PLC agreed to sell its wholly owned subsidiary Queensland Curtis LNG Pipeline Pty. Ltd. (QCLNG) to APA Group for about $5 billion.

More West Texas gathering, processing to come onstream

12/09/2014 EagleClaw Midstream Services LLC, Midland, Tex., has bought natural gas gathering and processing in Reeves County, Tex. The company declined to ide...

Methane controls just part of complete climate strategy, speakers say

12/08/2014 Reducing oil and gas operations’ methane emissions is an essential, but far from the only, part of a comprehensive climate strategy, speakers at a ...

Rail tank car rule could cost economy billions, report says

12/08/2014 The US Pipeline and Hazardous Materials Safety Administration's (PHMSA) proposed rail tank car rule could cost the US economy as much as $60 billio...

White Papers

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

When Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST



On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected