Transneft: ESPO's first stage on track for yearend

The first stage of Russia's East Siberia-Pacific Ocean pipeline will come on stream on Dec 25, 2009, according to Nikolai Tokarev, the head of the state-owned pipeline operator OAO Transneft.

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Jan. 13 -- The first stage of Russia's East Siberia-Pacific Ocean pipeline (ESPO-1) will come on stream on Dec 25, 2009, according to Nikolai Tokarev, the head of the state-owned pipeline operator OAO Transneft.

"There are grounds to assume we will succeed," Tokarev said, adding that the revised budget for ESPO-1 had been approved at 390 billion rubles ($12.5 billion), with an extra 60 billion rubles ($1.94 billion) to be invested in the Kozmino terminal on Russia's Pacific Coast.

According to Tokarev, the estimated cost of building ESPO-1 rose 21% to 390 billion rubles from the original estimate of 322 billion rubles following an adjustment for inflation at yearend 2008.

ESPO-1 will extend 2,757 km from Taishet in East Siberia to Skovorodino in the Amur Region near the border with China, while the line's second stage, ESPO-2, will extend a further 2,100 km from Skovorodino to the port of Kozmino on Russia's Pacific Coast.

Altogether, ESPO-1 is designed to transport as much as 220.5 million bbl/year of oil to Skovorodino, while the combined ESPO-1 and ESPO-2 lines will transport as much as 367.5 million bbl/year of oil. While awaiting construction of ESPO-2, oil will be transported by rail from Skovorodino to Kozmino.

ESPO feasibility under scrutiny
Tokarev said Transneft is ready to begin construction of ESPO-2 by yearend, but that the line's feasibility study is currently under scrutiny by Russia's State Environmental Review Agency.

In December, Natural Resources Minister Yury Trutnev said his ministry planned to conduct an analysis of the resources needed to fill the ESPO line, underlining his concerns that the global economic crisis could affect development of the necessary oil resources in Eastern Siberia.

"Just a couple of years ago, we gathered oil producers and received from them absolutely confident statements of production volumes, summed them up and received an absolutely calm picture of resources supply," Trutnev said.

"Today we are confident that this work needs to be done again. We need to make sure that everything is O.K. Otherwise we may have concerns and therefore need to take appropriate measures," Trutnev said, adding, "We will do that in February."

No China spur until 2010
Meanwhile, in making his announcements this week, Tokarev said that OAO Transneft will not be able to begin the construction of a proposed pipeline spur from Skovorodino to the Chinese border until 2010 at the earliest.

"We will complete the construction quickly and efficiently, but it won't be in 2009 since the issue of financing has yet to be resolved," Tokarev said, referring to a breakdown in negotiations with China that took place late last year.

Transneft and OAO Rosneft, which were expecting Chinese loans of $10 billion and $15 billion, respectively, for construction of the spur and for oil deliveries, were unable to complete talks with China National Petroleum Corp. by yearend 2008.

In early December China said it expected to sign the agreements before yearend 2008, but the talks broke down due to a disagreement over interest rates for the loans, with China insisting on a floating rate, while Russia waning a fixed rate.
Talks between the two sides are scheduled to resume in February, about the time the resources ministry plans to announce its revised analysis of the resources needed to fill the ESPO line.

Contact Eric Watkins at hippalus@yahoo.com.

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