THE KREMLIN PROMOTES EASTERN PIPELINE PROJECT

The Kremlin is giving its strong support to the construction of the Eastern Siberia Pacific Oil Pipeline (ESPO), apparently viewing it as an important economic and foreign policy tool. The pipeline was planned to promote faster growth of the Russian Far East, and Russian President Dmitry Medvedev has ordered Transneft to launch the ESPO without any glitches in terms of deadlines and quality control. The ESPO “is a very important pipeline for our country, for both political and economic objectives,” he said at a meeting at the Kremlin on June 16.

Medvedev told Nikolai Tokarev, head of Russia’s pipeline monopoly Transneft, that those subcontractors that failed to deliver on their obligations should be punished financially. No delays should be allowed, Medvedev said and ordered Tokarev to interact closely with the government on the ESPO construction (Interfax, ITAR-Tass, RIA-Novosti, June 16).

The construction of the ESPO’s first stage, Taishet-Skovorodino, would be completed by the end of 2009, Tokarev said. Following a discussion in Khabarovsk in February, the speed of construction was increased by three times, using 8,000 workers and 3,500 pieces of machinery, he said.

By September 2008 Transneft plans to launch the 1,100-kilometer (680-mile) completed section of the ESPO in reverse mode to pump oil from Talakan to Taishet. By now, the 400-kilometer (250-mile ) section of the pipeline has been filled with crude, Tokarev said. The construction of ESPO’s second stage, Skovorodino-Kazmino, is to start in December 2009 (Interfax, ITAR-Tass, RIA-Novosti, June 16). The ESPO first stage will have a capacity of 30 million tons per year, while the second stage will carry 80 millions tons of crude per annum.

During his Far Eastern tour in February, Medvedev was told that the ESPO faced significant delays. Tokarev told Medvedev in Khabarovsk on February 7 that the first stage of the ESPO was unlikely to be completed before the fourth quarter of 2009. Subsequently, Medvedev strongly criticized the delays as “miserable.”

Talk of ESPO delays first surfaced in November 2007, when Transneft first suggested delaying the launch of ESPO’s first stage. Cost estimates of the project also went up from $11.2 billion in late 2006 to $12.5 billion in August 2007. Transneft argued that the delay was caused by difficult terrain, harsh weather conditions, and the decision to move the pipeline away from Lake Baikal.

There have also been concerns that Russia’s Eastern Siberia may not have enough oil to fill the ESPO. In order to fill the pipeline, Eastern Siberian would have to produce more than 50 million tons of crude a year by 2020 and sustain production at this level.

Russia’s state-run Rosneft has promised to supply 25 million tons of crude for the ESPO in 2009 from Vankor oil field, while two million tons are expected from Rosneft/TNK-BP’s Verkhnechonsk field, two million tons from Talakan field of Surgutneftegaz and about one million from Urals Energy’s Dulismin deposit.

On June 17 Vyacheslav Shtyrov, head of Sakha-Yakutiya regional administration, announced that the region’s Talakan oil field was prepared to pump crude to the ESPO immediately. His statement followed a meeting with Vladimir Bogdanov, CEO of Surgutneftegaz oil company, which is developing the Talakan field. Shtyrov said that there were already 7,000 people employed at the Talakan deposit (RIA-Novosti, June 17).

Transneft executives have conceded that owing to limited availability of local crude, some oil for the ESPO could be funneled from Western Siberia; but the pipeline project got a timely boost from a new hydrocarbon discovery in Eastern Siberia. On June 19 it was announced that a new oil and gas deposit, West Ayanskoye, had been discovered in Ust-Kut district, just 100 kilometers (60 miles) from the ESPO route. Reserves of West Ayanskoye deposits were estimated at 24 million tons of oil and 30 billion cubic meters of gas (www.pravda.ru, June 19).

Apart from construction and supply problems, the ESPO has also faced environmental controversies. Transneft originally considered two ESPO routes in Khabarovsk area: the northern route downstream from the town, and upstream southern route.

Transneft had selected the southern variant, but the Khabarovsk regional government strongly opposed the southern route, being wary of possible environmental repercussions. Therefore, Transneft eventually switched to the northern route, downstream from the town and its water supply systems. On June 17 Transneft started public hearings in Khabarovsk on the issues related to the ESPO construction in the region (RIA-Novosti, June 17).

Nonetheless, other regions in the Far East have also indicated their concerns over the ESPO. On June 17 environmental activists in Blagoveshensk, Amur region, held a protest against the ESPO plans. They argued that the pipeline construction might adversely affect Blagoveshensk’s sources of drinking water (www.amur.info, June 18).

The ESPO has been understood to be an important element of Moscow’s efforts to balance its oil exports strategy between West and East. Russia has long been mulling over a reorientation of its hydrocarbon exports to Asian consumers. The Kremlin intended to deliver up to one third of its total oil exports to the Asia-Pacific region by the year 2020 compared with the current level of about 3 percent. The ESPO is now being developed in pursuit of this strategy.