Crude-oil quandary causes concern
By Xie Ye (China Daily)
Updated: 2004-02-24 15:25

The growing signs that Russia may pull out of the proposed US$2.5 billion Sino-Russian crude oil pipeline has raised great concerns among the Chinese partners of the project.

Chinese oil company officials said they are keeping a close eye on the development of the issue, but added that they would play down the event to prevent pushing the Kremlin too hard on the matter.

On February 20, Russian Energy Minister Igor Yusufov said Russia is studying the construction of a US$5 billion to US$7 billion oil pipeline to its Pacific coast to export East Siberian crude to the United States and Asian customers, such as Japan.

The proposal, which is favoured by Japan, conflicts with China's earlier scheme to build a direct link from Angarsk in East Siberia to Daqing in Northeast China.

Chinese oil company officials said on February 23 they have not received any official announcement from the Russian side that the Angarsk-Daqing project has been rejected.

"It is not the final decision by the Putin Government," said an official with the China National Petroleum Corp (CNPC), the Chinese company backing the project.

The official indicated that there is still room for the Chinese Government to lobby the Kremlin to build the Angarsk-Daqing proposal.

Even if the Russian side finally decides to bypass China and extend the pipeline to the Pacific coast, experts said they would not rule out the possibility that Russia may build a spur on the trunkline to transport some of the crude to Daqing.

On February 20, Yusufov said China will have equal access to buy oil in the area close to the port of Nakhodka where the future pipeline may finish.

Experts warned that a collapse of the Sino-Russian pipeline project would damage the relationship between the two neighbouring countries, both economically and politically. China had pinned high hopes on the crude oil pipeline after the two countries signed a non-bidding agreement for the project last March. The trunkline would allow China to ship 700 million tons of Russian crude through the pipeline to China over the next 25 years.

The deal, worth US$150 billion in total, would be the largest-ever bilateral trade arrangement between the two countries.

CNPC officials said that China should try harder to get the Russian crude deal completed, since it makes economic sense due to the short transportation distance.

But it should also make preparations for the possible failure of the agreement, they said.

Earlier February, China National Petroleum Corp, the nation's largest oil producer, had primarily agreed to buy 10 million tons of oil annually from OAO Yukos Oil Co Russia's largest oil company for at least six years.

"One of the signals we see behind the increased oil transportation by rail is that the oil pipeline project may be further delayed," said Li Fuchuan, a Russian oil expert with Chinese Academy of Social Science.

Meanwhile, China is also mulling over possibly building a similar crude oil pipeline from Kazakhstan to its western Xinjiang Uygur Autonomous Region. Once completed, the 1,200-kilometre-long pipeline would be able to deliver up to 20 million tons of crude to western China annually.

The government is evaluating the economic feasibility of the project, which is believed much more expansive than the Russian crude plan.

Last year, China imported 5.25 million tons of Russian oil, rising 73 per cent year-on-year.