Japan, Russia start talks on oil pipeline details

Jan. 17, 2005
Japan's Foreign Minister Nobutaka Machimura, on a visit to Moscow that began Jan. 13, was expected to confer with Russian officials about their recently announced decision to construct an $11.5 billion oil pipeline from East Siberia to the Pacific coast.

Eric Watkins
Senior Correspondent

LOS ANGELES, Jan. 17 -- Japan's Foreign Minister Nobutaka Machimura, on a visit to Moscow that began Jan. 13, was expected to confer with Russian officials about their recently announced decision to construct an $11.5 billion oil pipeline from East Siberia to the Pacific coast.

The proposed 4,200-km, 122-cm pipeline will extend from Taishet to Perevoznaya via Kazachinskoye, Skovorodino, and Khabarovsk.

It will carry 1.6 million b/d of crude from the Tomsk region and Khanty-Mansi of Western Siberia, and from the Lena-Tunguska and Khatanga-Vilyuy provinces in East Siberia, as well as from the Verkhnechon (Irkutsk region) and Talakan (Yakutia) fields.

Also during his trip to Russia, Machimura was expected to propose convening a governmental committee on bilateral trade and economic affairs in February in Tokyo partly to discuss details of the pipeline, including Japan's financial assistance for the project, according to Japanese foreign ministry officials.

A senior Japanese government official welcomed the pipeline announcement by Russian officials in late December, but he said that it was a "very basic decision" and that much would depend on the details�particularly finances.

The Japanese official said the project would be economically viable if costs could be kept to the proposed $11.5 billion total and dismissed reports that costs could rise to as much as $18 billion.

The Russian Industry and Energy Ministry (IEM) submitted a draft resolution to the government for construction of the so-called Taishet-Skovorodino-Perevoznaya Bay pipeline on Dec. 28.

Russian news agency Interfax said the same day that it was unable to receive a comment from a government source regarding a timeframe for the signing of the document.

But a spokesman for IEM told the agency that designs for the project should be complete by May 1.

The draft reportedly had been agreed to by IEM, the Economic Development and Trade Ministry, the Natural Resource Ministry, and the Transport Ministry.

All seven parts of the Russian Federation through whose territory the pipeline will pass also have approved the project. They include the Irkutsk, Amur, and Chita regions; the Jewish [Autonomous] Region; Buryatia and Khabarovsk Territory; and Maritime Territory.

Diplomatic victory
Russia's decision to build the pipeline from eastern Siberia to the Pacific could be regarded as a diplomatic victory for Japan over China, both of which have lobbied hard for an oil route serving their needs (OGJ Online, Jan. 20, 2004 ).

At first, Moscow agreed with Beijing to build a pipeline from Angarsk to Daqing, China, with a capacity of 30 million tonnes/year. Later, a route from Angarsk to the Pacific port of Nakhodka, with a capacity of 50 million tonnes/year, was proposed by Tokyo.

The Japanese proposal has essentially won. Indeed, the new Russian proposal makes no mention of a pipeline or even a spur to China, although one is envisioned under terms of Russia's Economic Strategy for the period up to 2020.

Reactions
One analyst downplayed the issue, saying it was largely due to bureaucratic oversight.

"The 'loss' of a provision on a branch to China is most probably connected with the bureaucratic mechanism for approving the project," said Dmitriy Mangilev, analyst from the Prospekt investment company.

"Clearing with various departments takes a lot of time, and the government's request to prepare the draft by the new year came at the same time," Mangilev told Russia's Izvestiya newspaper.

A Russian official underlined that view on Jan. 11, saying that Moscow will likely develop plans for a pipeline spur to China based on the current project.

The Russian government's decision to build an oil pipeline system connecting Taishet in the Irkutsk region, Skovorodino in the Amur region, and Perevoznaya Bay in the Maritime (Primorye) Territory does not rule out the possibility of building a branch to China.

Sergei Grigoryev, vice-president of the state oil transportation company Transneft, told Interfax that the pipeline document just expresses the government's "principled decision" to build an oil pipeline running in the eastern direction.

"What matters above all for us is that a principled decision has been made, and now we will launch a specific feasibility study and begin the construction. A decision on building a branch to China will be made in the course of the project implementation," Grigoryev said.

Russia plans to build a railway loading station in Skovorodino, from which oil will be delivered by rail to Nakhodka at the first stage, and this makes it possible to transport oil from Skovorodino to China, Grigoryev said.

"The distance between Skovorodino and China is 50 km, and (the construction of) this branch will not cost too much," he said.

"If China wants to receive oil by this route and concludes a contract with a supplier, this option can be implemented under an intergovernmental agreement or without it," he said.

Grigoryev also said the feasibility study of the project will be conducted by Transneft's subsidiary, Giprotruboprovod, and financed by Transneft, which is also continuing to negotiate loans to finance the pipeline's construction.

As a further gesture to Beijing, meanwhile, Moscow is expected to commit the delivery of 10 million tonnes of oil to China in 2005, 4 million tonnes more than in 2004, according to Russian railways chief Gennady Fadeyev.

Fadeyev made the announcement after signing a contract with Russian oil major OAO Lukoil, which agreed to supply 3 million tonnes of crude to China in 2005.

Fadeyev said state-owned company OAO Rosneft would supply 4 million tonnes in 2005, and 3 million tonnes would come from embattled OAO Yukos, which is under attack from Russian authorities over fraud and tax allegations.

By 2007, Russia hopes to expand its oil deliveries to China, mostly by rail, to 15 million tonnes.