Pipeline will move Siberian crude oil to China

June 12, 2000
Plans for a $1.7 billion crude oil pipeline between Russia and China advanced earlier this year when government officials from the two countries signed an agreement to begin construction in 2003.

Plans for a $1.7 billion crude oil pipeline between Russia and China advanced earlier this year when government officials from the two countries signed an agreement to begin construction in 2003.

Russia's No. 2 oil company, Yukos, joined Russian national oil pipeline monopoly Transneft and Chinese oil giant China National United Oil Corp. (Chinaoil) to construct the line that will start up in 2005 and will be able to move 30 million tonnes/year (tpy) of Siberian production by 2010.

Signing the agreement in China in late March were Russia's Minister of Fuel and Energy Victor Kalyuzhnyi and China's Minister of the State Planning Development Commission (SPDC) Zeng Peiyan. By first half 2001, participants will issue a due-diligence report and determine financing.

Routing

China and Russia have yet to agree on the routing of the pipeline, which will start in the Angarsk oil fields in East Siberia.

Initial throughput of 20 million tpy will come from Yukos'oil fields in western Siberia. Expansion by 2010 will occur when oil fields at Angarsk come on stream.

The preliminary proposal signed by Chinese and Russian sides calls for the line to stretch 2,330 km from Angarsk, across Mongolia, then into Beijing. A second possibility would be a 2,500-km pipeline through northeastern China.

Russia wants to cut the pipeline's distance by traversing Mongolia. The Chinese would like to circumvent Mongolia for security reasons.

About 1,630 km of the pipeline will be built in Russia at a cost of $950 million, while the remainder will be built in China at a cost of $650 million.

Yukos said the final route will be chosen after financing has been decided.

China National Petroleum Corp. will represent China to spearhead the pipeline's construction. CNPC has completed the prefeasibility study and will soon submit the project proposal to SPDC.

Chinese imports

Yukos has already been shipping crude to China by railroad. The company has signed deals with China to supply 1 million tpy of crude in 2000 and is drawing up agreements with Chinaoil and Chinese oil major Sinopec for deliveries of 500,000 tonnes.

Yukos' officials cited the tremendous potential of the Chinese market as underpinning the pipeline's importance. China imported 35 million tonnes of crude in 1999 and will need at least 50 million tonnes this year.

Total deliveries on the Chinese market in 2000 will be 210 million tonnes, according to the state's economic plan. Yukos forecasts that China's crude imports will reach 75 million tonnes in 2005.

Oil analysts have praised the Russia-China pipeline project because Russia has long needed additional export routes and China is a fast-growing market. Russia exports about 130 million tpy of oil.

With oil prices firmly more than $20/bbl, analysts have said Yukos should have little trouble finding financing.