China, Russia to sign ESPO line construction agreement

Chinese Premier Wen Jiabao is to visit Moscow next month to meet with Russian Prime Minister Viktor Zukhov and sign an agreement for the construction of the ESPO oil pipeline.

Eric Watkins
Senior Correspondent

LOS ANGELES, Oct. 3 -- Chinese Premier Wen Jiabao is scheduled to visit Moscow next month to meet with Russian Prime Minister Viktor Zukhov and sign an intergovernmental agreement for the construction of the East Siberia Pacific Ocean (ESPO) oil pipeline.

The scheduled talks follow earlier ones in September between Russia's Deputy Prime Minister Alexander Zhukov and his Chinese counterpart Vice-Premier Wu Yu in which the two sides discussed construction of the line from Taishet to Skovorodino, with a spur to the Chinese border.

Wu is said to have argued that, along with the pipeline spur, China also should get special terms and preferences for the oil to be carried along the line. But the Russians did not agree and suggested instead that, without a separate agreement on the prices and amounts of oil required, no pipeline could be built.

"Building a pipeline only makes sense if companies can reach agreement on prices and oil delivery volumes," said Zukhov. "Otherwise," he said, "the pipeline's capacity will be wasted."

Zhukov further explained: "Oil supplies should be negotiated between companies, while an intergovernmental agreement should regulate precisely the construction of an oil pipeline."

While assuring the Chinese that Russia can meet their demand for oil, Zhukov said OAO Rosneft is unhappy with the price at which it is currently shipping oil to China because it has the opportunity to "sell oil to the West at a higher price."

As a result, he said, "Negotiations are currently under way with China to change the oil-price formula so that supplies to China and in the Western direction be equally beneficial."

The Chinese are reported to have agreed to cover all construction costs for the pipeline spur from Skovorodino to the Chinese border but they will have to negotiate pricing formulas separately with Rosneft.

Those discussions could be formidable as Rosneft Deputy President Dmitry Bogdanchikov last month said Russia should restrict the amount of oil it plans to transport to China via the projected ESPO line (OGJ Online, Sept. 18, 2007).

Contact Eric Watkins at hippalus@yahoo.com.

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