China hopes to sign ESPO agreement this month

China National Petroleum Corp. hopes to sign an agreement on the construction of a spur from Russia's East Siberia-Pacific Ocean oil pipeline when Chinese and Russian leaders meet later this month.

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 17 -- China National Petroleum Corp. (CNPC) hopes to sign an agreement on the construction of a spur from Russia's East Siberia-Pacific Ocean (ESPO) oil pipeline when Chinese and Russian leaders meet later this month.

"The corporation expects the signing of a specific commercial document on building the ESPO Chinese extension during the Moscow visit of Chinese State Council Premier Wen Jiabao this October," a CNPC official told Russian media.

"Russian officials have said many times that they support the project. Hence, CNPC hopes that experts will draft their conclusions by the Chinese premier's visit and [that] the document will be signed," the CNPC source said.

The hoped-for pipeline spur to the Chinese border from Skovorodino in Russia will be just 67 km long, and will have an initial capacity of 15 million tonnes/year of crude oil.

During a visit to China by OAO Rosneft president Sergei Bogdanchikov last month, the two sides agreed in principle on the eventual supply of Russian oil through the ESPO pipeline spur to China.

But the two sides did not agree on a pricing formula. Rosneft reportedly offered China a price based on market rates at the Kozmino export terminal, while the Chinese prefer to set a fixed price formula for supply of oil through the pipeline

According to one Chinese official, it is understandable that Rosneft would not like to lose profit, but it is unclear what the price would be in Kozmino "which still has no market, and, therefore, no prices."

Russia plans to construct the ESPO in two stages. In the first stage, a pipeline having 30 million tonnes/year throughput capacity will be laid between Taishet in the Irkutsk region and Skovorodino.

Additionally, an oil export terminal will be built at Kozmino on Russia's Pacific Coast. After reaching Skovorodino by pipeline, the crude oil initially will be transported to Kozmino by rail.

In the second stage of construction, a pipeline will be laid from Skovorodino to the Kozmino export terminal, and pipeline capacity will increase to 80 million tonnes/year.

Contact Eric Watkins at hippalus@yahoo.com.

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