Publication: Eurasia Daily Monitor Volume: 4 Issue: 139

On July 13 the foreign ministers of Russia and China met in Moscow to discuss bilateral ties, including energy issues. After the meeting Russia’s top diplomat, Sergei Lavrov, noted a shared interest in investment cooperation and coordination of plans to develop Russia’s Far East and Siberia, as well as Northeastern China (Interfax, RIA-Novosti, July 13).

Russian energy officials were keen to reassure their Chinese counterparts that Russia is a reliable energy supplier. Just three days earlier, Industry and Energy Minister Viktor Khristenko, in Beijing for a bilateral energy commission meeting, announced that Russia had fulfilled its commitments and supplied 10 million tons of oil to China by rail (Interfax, Itar-Tass, July 9-10). However, he seemed reluctant to mention that Russia had previously planned but failed to raise its oil shipments to China by rail to 15 millions tons in 2006.

During talks in China, Russian officials were keen to counter questions about the economic viability of the Eastern Siberia-Pacific Ocean (ESPO) pipeline. The first stage of ESPO would “undoubtedly” be filled with 30 millions tons/year, because Russian oil companies have already pledged more crude for the pipeline, Khristenko explained. Regarding the second stage, there is “more optimism than pessimism” about filling it to its 80 millions tons/year capacity, he said.

If a branch pipeline is built from the ESPO to China, Russia could supply 15 millions tons/year at the first stage and up to 30 millions tons/year eventually, Khristenko predicted. Transneft and the China National Petroleum Corporation (CNPC) could cooperate in designing and studying the feasibility of the offshoot line, he said.

In the meantime, Moscow apparently would not mind if Chinese consumers partly foot ESPO expenses. Construction of the offshoot would start about seven months after the first Chinese payment, Khristenko explained. According to the contract, construction would start upon completion of the project’s design, which is funded by China. The first Chinese installment arrived in June, and completion of the project’s design phase is due in 208 days, he said, adding that actual construction would be done by a Chinese contractor (Interfax, Itar-Tass, July 9-10).

Simultaneously, Russian contractors have rushed forward with the ESPO project. On July 12 Russia’s pipeline monopoly Transneft built the 1,000th kilometer of the ESPO pipeline near Neryungri in Yakutiya. Semyon Vainshtok, head of Transneft, announced that a total of 160 billion rubles ($6.3 billion) had been disbursed so far. He pledged to build the 2,694-kilometer pipeline in its entirety by the end of 2008, working at a pace of about five kilometers per day (Interfax, July 12).

Therefore, Transneft has spent almost all of its 2006 earnings of some 180 billion rubles ($7 billion) to build the ESPO. Construction of the Taishet-Ust-Kut and Tynda-Skovorodino sections is complete, while the Ust-Kut-Talakan and Skovorodino-Aldan are still under construction.

“We are confident that the first stage [of ESPO] will be completed and filled in time,” Deputy Industry and Energy Minister Andrei Dementyev announced in Neryungri. However, he conceded that investments in ESPO could only be recouped in 18-20 years (Interfax, RIA-Novosti, July 12).

Transneft’s Vainshtok also disclosed that Russia’s state-run Rosneft oil firm has promised unexpectedly high volumes of crude for the ESPO. Rosneft pledged to supply 25 million tons of crude for the ESPO in 2009 from Vankor oilfield, while 2 million tons are expected from Rosneft/TNK-BP’s Verkhnechonsk field, 2 million tons from Surgutneftegaz’s Talakan field, and around one million from Dulismin deposit of Urals Energy, he said.

Vainshtok’s announcement came as a surprise, because Rosneft previously had not been expected to raise crude output at Vankor oilfield up to 25 million tons until 2014. As doubt about the availability of local crude remains, Vainshtok had to concede that some volumes for the ESPO could be funneled from Western Siberia.

Meanwhile, despite optimistic official pronouncements, there are signs of bilateral disagreements. Russian gas supplies to China may be put off unless bilateral negotiations on the Western route are completed this year, and talks on the Eastern route are finished in 2008, Khristenko announced in Beijing. Gas supplies along the Western route are expected to start in 2011, and the Eastern route is due on stream in 2016 (Interfax, July 10). Although Khristenko declined to elaborate on why bilateral negotiations could take longer than expected, China was understood to be reluctant to accept Russian offers of gas at a high price.

In March 2006 Russian President Vladimir Putin traveled to China and pledged to raise oil and gas exports to that country. That same month, Gazprom and CNPC signed an agreement on gas supplies from Russia to China, via the Western route, known as the Altai pipeline. Gas supplies via both routes were expected to total 68 billion cubic meters (bcm) eventually, with the first shipments due from 2011. The Western route was expected to funnel 30 bcm/year a year to China and the Eastern route — 38 bcm/year.

Russia has repeatedly said its plans to supply China would not mean that oil and gas exports were rerouted from Europe. However, Moscow’s China-bound pipeline plans were understood to imply a warning to European consumers that Russia would prefer to have an option to redirect oil and gas to China. Yet the Kremlin’s pipeline game may still be undermined by China’s reluctance to buy Russian energy resources at any price.