Russia finishes pipeline sending their Siberian oil to China

Russia opens China pipeline for Siberian oil

By Isabel Gorst in Moscow

Published: August 29 2010 18:00 | Last updated: August 29 2010 18:00

Vladimir Putin, the Russian prime minister, on Sunday opened a new pipeline to export east Siberian oil to China that will help Russia reorientate its oil trade towards the east.

The pipeline, running 67km from Skovorodino in east Siberia to China’s north-eastern frontier, is an offshoot of a new oil export route Russia is building to the Pacific Ocean, providing a strategic window on the fast-growing energy markets of Asia.

“This is a vital project for us as we begin to diversify our sales of strategic raw materials,” Mr Putin said. “So far we have delivered most oil to Europe … The Asia-Pacific region has received insubstantial volumes.”

Russia began exporting oil this year from a new export terminal on the Pacific Ocean built to serve fields in east Siberia, one of the world’s last untapped oil provinces. Some Kremlin-friendly oil companies have been granted tax breaks to speed development of east Siberian reserves and offset a decline in production in other regions.

Transneft, the Russian oil pipeline monopoly, completed the construction of a pipeline from Taishet in the Irkutsk region to  last year, the first stretch of a planned 2,757km pipeline to the Pacific. On completion in 2012, the pipeline will be capable of carrying up to 1.6m barrels of oil a day, about one-third of Russia’s current exports.

Russia Kozmino pipeline mapJulia Nanay, senior director at PFC Energy, the Washington-based oil consultancy, said the pipeline would give Russia flexibility to focus oil trade on premium markets. “There is more money to be made by exporting to Asia than to Europe. By building the spur to China, Russia is acknowledging commercial realities,” she said.

Russia accepted a $25bn (€19.6bn, £16bn) loan from China in exchange for future oil deliveries last year, cementing its energy-trading relations with the world’s fastest growing oil consumer. The deal entitles China to import 300,000 barrels a day of Russian oil for 20 years starting in 2011.

Transneft said last year that Russia would boost its daily oil production by 1m barrels to 11m b/d after 2012, providing enough oil for exports both ways.

But analysts have warned that Russian oil production, after rising to an all-time record of 10.2m b/d this month, will begin to fall next year as a decline accelerates at mature fields.

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