Russia, China to keep to agreement over ESPO oil price

Russia's Deputy Prime Minister Igor Sechin, shrugging off earlier reports, said Chinese officials have not sought to revise an earlier agreement over the cost of oil delivered to China via a recently launched 67-km spur from the Eastern Siberia-Pacific Ocean (ESPO) pipeline.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Sept. 24 -- Russia's Deputy Prime Minister Igor Sechin, shrugging off earlier reports, said Chinese officials have not sought to revise an earlier agreement over the cost of oil delivered to China via a recently launched 67-km spur from the Eastern Siberia-Pacific Ocean (ESPO) pipeline.

“The Chinese side has not raised the issue,” said Sechin after a meeting with Chinese officials. “All the parameters are in line with the agreement, and there is no question of revision,” he said.

Chinese officials earlier said imports of Russian oil via the spur should be priced at a lower rate because ESPO blend crude travels just 67 km to China from the terminus of the main line at Skovorodino, while ESPO blend sold at Kozmino on the Pacific Coast is carried by railcar some 2,000 km beyond Skovorodino.

“We believe it would be fair to purchase the oil from Rosneft at a price lower than that offered at Kozmino,” an official of the state-owned China National Petroleum Corp. told Russia’s Interfax news agency. “The distance from Skovorodino to Kozmino is about 2,000 km, but just 60 km to the Chinese border” (OGJ Online, Sept. 13, 2010).

Sechin said under the Russian-Chinese intergovernmental agreement on oil supplies via the oil mains and the corporate agreement, supplies will begin in 2011. Until then, under existing agreements, Russia will send 15 million tons of oil a year to China via the ESPO line.

Meanwhile, Anglo-Russian TNK-BP said it signed a contract to supply ESPO crude oil to Vietnam. The first 100,000 tonne shipment under the new contract will take place in November, TNK-BP said, adding that it is supplying the oil from the Verkhnechonskoe field in the Irkutsk region.

Vietnam reportedly wants to secure a 12-month agreement for a monthly 100,000-tonne cargo of ESPO blend under the framework deal being finalized. Vietnamese officials are thought likely to meet TNK-BP next week to discuss details.

The TNK-BP announcement coincided with reports that Vietnam is seeking to import crude from various sources for its Dung Quat refinery to produce more diesel and free up local supply from Bach Ho and Nam Rong-Doi Moi fields for exports.

“ESPO's diesel yield is quite high so there's more incentive to process ESPO,” Sam Saw, a Singapore-based analyst at FACTS Global Energy told Reuters. Saw said the move will allow better quality light, sweet Bach Ho crude to be exported to Japan and South Korea.
The move also underlines recent negotiations between the two sides over development of the Dung Quat facility. In August, PetroVietnam said it signed a memorandum of understanding on oil and gas cooperation with TNK-BP, including a study of the options for expanding the Dung Quat refinery.

Earlier, Vietnam’s Deputy Prime Minister Hoang Trung Hai approved a plan to raise the refinery's capacity to 10 million metric tons of crude oil a year, or 200,800 b/d, from the current 6.5 million tonnes.

Contact Eric Watkins at hippalus@yahoo.com.

More in Pipelines