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June 26, 2002

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Central Asia/Russia

Russia, China eye pan-Asian oil bridge

By Sergei Blagov

MOSCOW - Russia and China are one step closer to finalizing a deal on a crude-oil pipeline project, yet it remains to be seen whether the project will pave the way toward building a pan-Asian continental hydrocarbon bridge.

About US$2 billion is to be invested to fund the construction of the Russia-China oil pipeline, a Russian oil executive disclosed. According to Nikolai Stepanchenko, a representative of the Samarneftegaz oil firm, a bilateral feasibility study group has met in Samara, central Russia, and approved the investment blueprint of the pipeline, which is designed to supply 20 million to 30 million tons of oil to China every year.

The pipeline is to be funded by state-run oil pipeline monopoly Transneft and Yukos, the country's second-largest oil company, and the China National United Oil Corp (Chinaoil), Stepanchenko was quoted by the Russian Information Agency (RIA) as saying on Monday. Samarneftegaz is Yukos's subsidiary. The pipeline's total length is to be 2,247 kilometers, including 1,452km in Russia. Originally, only Yukos was interested in the project, but Transneft later put aside its doubts and said that it would join in.

The construction of the pipeline from the Russian city of Angarsk in the Irkutsk region to Daqing in northeastern China is scheduled to begin next year and commissioned by 2005, said Stepanchenko. He further elaborated that the blueprint implied that through 2005-09 the pipeline was due to supply 20 million tons of crude a year from oilfields in the Sakha-Yakutia region, in eastern and western Siberia.

By 2010 the supply is to be raised to 30 million tons per annum, Stepanchenko said, claiming that Yukos would be able to guarantee the supplies on its own in the event of other potential suppliers declining to join in the 25-year project.

The Kremlin has long prioritized greater cooperation with China. Incidentally, also on Monday, Russian President Vladimir Putin met domestic and international media and stated that the current level of relations between Russia and China was "higher than ever". Putin also said bilateral economic ties were "below potential".

However, Russian officials are yet to specify exactly how the Angarsk-Daqing pipeline is to be financed. Yukos executives have indicated that the Russian side would possibly pitch in about $700 million of the total project cost. Hence, Chinaoil, by paying the larger amount, would appear to be calling the tune in the project.

Preliminary plans for the oil pipeline involved two possible routes starting from the Angarsk refinery near Irkutsk, eastern Siberia, going to either Beijing or Daqing, Manchuria. The other possible route is through Mongolia. Russia has favored the route through Mongolia because it is 170km shorter, while Chinese officials presumably prefer the second route because of lower political risks.

In April, Deputy Prime Minister Viktor Khristenko traveled to Beijing at the head of a delegation of Russian officials and oil executives to discuss the pipeline with his counterpart, Wen Jiabao, and other Chinese officials. Presumably, the Chinese managed to persuade their Russian counterparts to pick the route avoiding Mongolia.

Moreover, it is understood that the Chinese government aims to diversify the country's energy supply through the construction of pipelines to transport oil and gas from Russia and Central Asia. Presumably, pipelines that circumvent the US-dominated shipping lanes will decrease China's vulnerability to disruptions of seaborne oil supplies.

Since the mid-1990s there have been calls in China for the construction of a "pan-Asian continental oil bridge" that would consist of a network of pipelines linking suppliers in Central Asia and Russia to consumers in China, and possibly Korea and Japan.

However, the Chinese efforts to build the Russia-China links of such as bridge have been more promising, in contrast with earlier plans for Central Asia-China pipelines. For instance, a Kazakhstan-China pipeline would have stretched from the Uzen and Aktyubinsk fields to the Kumkol field in central Kazakhstan and subsequently to Xinjiang, western China. It was estimated to cost $3.5 billion. In September 1997, Chinaoil signed an agreement to conduct a feasibility study. However, this project was criticized as a "pipe dream" because of the high costs of its construction. In August 1999, Chinaoil reportedly shelved the project, citing insufficient production levels.

Moreover, the "pan-Asian continental oil bridge" vision has included plans for a Kazakhstan-Iran 1,000km oil pipeline at an estimated cost of $1 billion. It would have run from the Uzen field through Turkmenistan and Iran to the Persian Gulf, from where oil would have been shipped to both China and Europe. In September 1997, Chinaoil indicated interest in this pipeline, yet the project seemingly remains inactive.

On the other hand, China's involvement in massive pipeline projects could be viewed as a way for China to expand its influence in Central Asia and Siberia. For instance, Chinaoil once sought to take 50,000 workers to Kazakhstan to build the pipeline. Needless to say, such a move would have created a sizable official Chinese presence in neighboring countries.

Now, the moves toward the implementation of the Angarsk-Daqing pipeline project are considered significant because they may open the doors for further contracts between the two countries in the area of energy development. Russia, which sits on a quarter of the world's natural-gas reserves, is looking to gain access to the Chinese market via a huge multibillion-dollar pipeline project designed to export Siberian gas.

Preliminary studies show the feasibility of installing a 3,700km pipeline between the Kovykta natural-gas field, 400km north of Irkutsk near Lake Baikal, and China's Pacific coast port of Lianyunggang via Ulan Bator in Mongolia. Such a project can carry 20 billion cubic meters of gas annually. The original blueprint included possible underwater links to South Korea and Japan, but these may have to be shelved for now. The estimated cost of the project may drop to $4 billion from the original $10 billion to $12 billion, which included links to Japan and South Korea.

However, the Kovykta gas pipeline project has already become quite a long saga. The first formal expression of intent to develop this pipeline was a memorandum of understanding signed between China and Russia in November 1994. Russia and China have reportedly already invested about $20 million for a feasibility study. Yet it is still debatable whether the Kovykta field contains reserves big enough to justify a pipeline.

Moreover, an even more ambitious Turkmenistan-China-Korea-Japan natural-gas pipeline project has been discussed. This would run 6,250km from Turkmenistan via Uzbekistan and Kazakhstan to Lianyunggang in China's Jiangsu province. The project's cost has been estimated at $9.5 billion. Possible extensions to Korea and Japan would make the pipeline 8,500km long, while the cost would skyrocket to $22 billion.

Therefore, the Angarsk-Daqing pipeline project is to be followed by several more ambitious ventures, although these important components of the vision of a pan-Asian continental hydrocarbon bridge remain on the drawing board.

(2002 Asia Times Online Co, Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)

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