ESPO line sees further developments by Chinese, Russians

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 28 -- Russian and Chinese officials are proceeding with joint and separate plans for development of the two-phase East Siberia-Pacific Ocean (ESPO) pipeline, including construction of a spur, a line from the spur to Daqing, and further extension of the main line on to the Pacific Coast.

The first joint in the planned 63.8-km pipeline spur from the Russian town of Skovorodino to the border with China was welded Apr. 27 in a ceremony watched by Russian Deputy Prime Minister Igor Sechin and Wang Dongjin, China National Petroleum Corp. vice-president.

An intergovernmental agreement, signed by Russia and China last week, said the spur will be operating by yearend 2010. The 720-mm spur will transport 15 million tonnes/year of oil for 20 years, with the first oil scheduled to reach Skovorodino this year.

Meanwhile, state media reported China will begin construction in mid-May of the planned 965-km oil line to link with the spur at the Russian border and continue southward to the city of Daqing in China's northeastern Heilongjiang province. China Central Television Station said construction of the line from the border to Daqing will be finished by October 2010, and that it will begin carrying the first 15 million-tonne tranche of Russian crude soon after.

Earlier this year, it was reported that CNPC and Russia's OAO Rosneft, following their respective governments' recent agreement on the construction of the ESPO spur, may soon begin construction of their long-planned 200,000 b/d refinery in the Chinese coastal city of Tianjin.

The spur from Russia and the longer Chinese line come in the wake of an agreement signed by China and Russia in February. Under the agreement, China lent $25 billion to Rosneft and OAO Transneft for the supply of 300 million tonnes of oil over a 20-year period.

All of the Chinese supply will be carried by the first phase of the ESPO line, which extends 2,700 km from Taishet in East Siberia's Irkutsk Region to Skovorodino in the Amur Region, where it will meet the spur to China.

Russian oil pipeline operator Transneft completed pipelay for phase one of the ESPO, according to Sechin, who said work continues on four of seven planned oil pumping stations along the line and on the export terminal at Kozmino Bay on Russia's Pacific Coast.

Russian officials said construction at Kozmino is nearing completion and that the oil export terminal there will be commissioned this year, with the first tanker expected to dock at the site for loading by yearend.

In addition to the 15 million tonnes/year heading to China via the spur, Russian officials plan for an equal amount of oil to be transported by rail from Skovorodino to Kozmino for export to markets in Asia Pacific and beyond (OGJ Online, Apr. 8, 2009).

Those supplies will initially be transported by train to Kozmino from Skovorodino until the second phase of the line is completed. The second phase, which will increase the line's capacity to 80 million tonnes a year, "should be completed as scheduled in 2014," Sechin said.

Meanwhile, ahead of its completion, Russian officials have been attempting to determine the cost of oil transiting the line. "At the moment there is a certain computation that the network tariff for transportation on ESPO will be in the region of $30-32/tonne," said Denis Volkov, the Federal Tariff Service's head of oil and gas sector regulation. That price was calculated in February when the exchange rate was 36 rubles to $1, but Volkov said a fundamental position on the ESPO tariff changed in 2008.

"In discussing the proposals we abandoned allocated project tariff for ESPO and are now moving toward the logic of equal terms on oil transportation to eastern and western markets, which involves balancing the tariff, but there are a lot of unresolved positions here," Volkov said.

The preliminary calculations of the network tariff will be adjusted, Volkov said, adding, "We do not plan to drag out the discussion. We will submit it [to the government] in May."

Contact Eric Watkins at hippalus@yahoo.com.