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Kremlin decides China pipeline on new terms
By John Helmer
MOSCOW - The
Kremlin has decided to authorize the construction of a
new oil pipeline to China, and a decision is expected to
be announced in Moscow in mid-March, according to
sources close to the government. Included in the
decision that has been reached, but unlikely to be
announced, is the Kremlin's agreement in principle to
build a second oil pipeline to the port of Nakhodka, on
the Sea of Japan. However, Japanese government proposals
to finance the second project have been rejected.
The new pipeline moves put a stop to speculation
in Moscow that the Kremlin was unwilling to proceed with
the China pipeline because it did not want to allow a
single consumer, the China National Petroleum
Corporation (CNPC), to monopolize the offtake.
In fact, the sources said, the reason that the
Kremlin forced Russian negotiators to suspend talks on
the pipeline in Beijing last December was that Russian
officials were unwilling to allow commercial interests,
led by oil producer Yukos, to plan and execute the
project on the Russian side.
At present, Russian
law gives the state strict control over every ton of
exported crude oil and petroleum products through
regulation over access to oil pipelines, tariff pricing
for pipeline and rail transportation, port control, and
customs inspection and export taxation. Most of Russia's
pipeline capacity is also owned by the state and managed
by Transneft, a state company.
Oil company
sources have been lobbying hard to have the government
allow them to build and finance new oil pipelines,
because their production is rising faster than the
country's export capacity. At present, because domestic
consumption of crude oil is static at around 4 million
barrels per day (bd), while production is rising at
about 10 percent per annum, and is already running at
over 8.1 million bd, every new barrel of oil produced
must be exported, if it is to be sold profitably. Export
capacity at the moment is only 3.5 million bd. By the
year 2012, government and company forecasts indicate
that Russian oil output will be 11.5 million bd. To
export 7 million bd of that, the country must,
therefore, double its pipeline and other export
capacity.
The Kremlin wants to retain its
control over exports in order to preserve ultimate
control over the oil companies themselves. "Russia's
pipeline system should remain under state control,"
Prime Minister Mikhail Kasyanov said at a recent meeting
at the Energy Ministry in Moscow. "But the state should
work out an automatic system for oil companies to access
the pipes."
Yukos chairman Mikhail Khodorkovsky
and other Russian oil company leaders have demanded
that, if the government and its pipeline monopoly
Transneft cannot afford the multi-billion dollar cost of
new pipelines, then the government should relax its grip
and allow commercially-owned pipelines instead.
The government has rejected this, Asia Times
Online's source says. But it has agreed to authorize an
increase in shipments of oil to China. The compromise
formula that officials will now propose will see
Transneft take over the pipeline between Angarsk, in
southeastern Siberia, and Daqing, in northern China. It
will be responsible for financing the Russian share of
the US$1.8 billion construction cost. Yukos, which had
intended to raise the money for the project, has been
ousted entirely. Yukos will supply the oil to be pumped
through to China, but nothing more.
The new
Kremlin idea is also to get China to finance both halves
of the project; the pipeline segment from the frontier
to Daqing, as well as the Angarsk section. However, it
will be China's pre-existing debt to Russia that will be
applied to the Russian sector of the pipeline, thus
making the Russian state the financier, without having
to put up any cash.
The Energy Ministry is also
recommending that the Kremlin approve a second and much
longer, more costly pipeline to ship oil to Asian
markets through Nakhodka, on the Sea of Japan. However,
the cost of this is at least three times that of the
China pipeline, and there is doubt that there will be
enough oil to pump through both pipelines at once. As a
result, the Kremlin is proposing to delay the Nakhodka
route until development of eastern Siberian oilfields
starts to generate more oil for transshipment.
This delay will camouflage the Kremlin's
decision not to proceed with a Japanese proposal to
finance the Nakhodka pipeline on condition that Japan
has first call on the crude oil for as long as repayment
lasts for the financing costs. Late last year, Japan's
foreign minister Yoriko Kawaguchi wrote to Moscow
proposing Japan's pipeline plan, and details were on the
agenda for discussion by officials during the January
meeting in Moscow between President Vladimir Putin and
Prime Minister Junichiro Koizumi.
Sergei
Grigoriev, vice-president of Transneft, told Asia Times
Online that the Japanese interest isn't new. He said
that the high level of talks on the pipeline project
does encourage hope for its implementation, but he
warned that if Tokyo insists on taking all of the annual
50 million-ton (970,000 bd) throughput of the pipeline
as a precondition for financing the project, that would
be unacceptable to Transneft. According to Grigoriev,
"So far Transneft hasn't participated in any talks.
Transneft proceeds with this project the same as before,
and considers Japanese investors to be same as all other
potential investors."
Grigoriev also warned that
"the main problem remains the availability of oil for
the eastern and southern pipelines. If Yukos will not
participate in the project of the pipeline to Nakhodka
it will be problematic to find the required 50 million
tons of oil for this route, as such a volume is not
available at the moment yet."
A compromise could
be struck, he added, to build both pipelines, "but this
will require an even greater volume of oil - 70 million
tons - and availability of that amount is the main
problem". Industry sources say that most of Russia's
increased oil output over the next five years will come
from central, northwestern and southwestern Russia.
Recoverable reserves in eastern Siberia are estimated by
Yukos to total 2.3 billion tons (16.6 billion barrels),
but to develop the oilfields to lift this oil will take
many years.
(©2003 Asia Times Online Co, Ltd.
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