Chinese progress with construction of ESPO pipeline extension

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 19 -- China National Petroleum Corp completed construction of a 1,090 m tunnel beneath the Amru River for a planned 1,000 km extension from Russia’s East Siberia Pacific Ocean pipeline.

The tunnel is the “most complex stretch” of the extension of the ESPO line, according to CNPC’s head of construction Li Changcai, who said oil pipe can now be laid beneath the river, with work to be completed by the end of this month.

Russia’s state-owned pipeline monopoly OAO Transneft completed construction on its section of the extension to China last October but noted the Chinese were experiencing technical difficulties with their initial section under the Amur River (OGJ, Oct. 27, 2009).

The pipeline extension is part of a project under which 15 million tonnes/year of Russian oil will be transported from the ESPO terminus at Sokovorodino to the Chinese industrial city of Daqing. The Chinese estimate construction of the 1,000 km pipeline will be finished this October.

Russia commissioned the first phase of the ESPO line in December, linking oil fields near Taishet in East Siberia with the endpoint at Skovorodino. Some 300,000 b/d are being transported by rail from Skovorodino to Kozmino on Russia’s Pacific coast for export to markets in Asia-Pacific.

Meanwhile, Transneft has begun construction of an oil pipeline between Purpe and Samotlor, which will put oil produced at OAO Rosneft's Vankor field directly into the ESPO pipeline system, connecting Russia’s eastbound and westbound trunk pipeline systems.

Russia’s Deputy Prime Minister Igor Sechin attended the ceremony for the first weld of the 429 km line, which will cost an estimated 45 billion rubles and have an estimated throughput capacity 25-50 million tonnes of oil a year when it comes online in 2012.

According to Sechin, the ESPO line already is changing the existing pattern of oil movements. “The world market makes it necessary to fundamentally revise energy supply routes, diversifying them to meet the requirements of our traditional customers,” he said.

The head of the Russian Union of Oil and Gas Industrialists Gennady Shmal shared that view, saying, “As regards Russia's position on the market in the Pacific, the ESPO oil pipeline will play the pivotal role there.”

However, the new Russian supplies piped along the ESPO already are causing problems for other producers, including those in the Organization of Petroleum Exporting Countries.

According to Shokri Ghanem, the head of Libya's OPEC delegation, due to increased Russian throughput, the organization now has less room to raise production as global oil use recovers.

“If it is increasing the production, this means increasing the world supply,” Ghanem told Reuters.

“Of course this will cut the share of OPEC to increase its production because they don't want to cut down their production, so we'll end up in some problems,” Ghanem said of rising ESPO output.

Traders and analysts say Russia’s ESPO crude already is putting pressure on prices of waterborne Middle Eastern crude grades sold in Asia due to its lower shipping costs, better quality, and shorter delivery times. They said Saudi Arabia cut its Asian oil prices to 14-month lows for April.

Contact Eric Watkins at hippalus@yahoo.com