China Offers Transneft $400M for Oil Pipeline
Published: March 24, 2006 (Issue # 1155)
BEIJING — China National Petroleum Corp. will provide Transneft with $400 million to build a long-promised pipeline that was originally supposed to ship Yukos oil to China, Transneft president Semyon Vainshtok said Wednesday.
Vainshtok made the announcement in Beijing as President Vladimir Putin wrapped up a two-day visit with assurances that he had not forgotten an agreement he had struck with Chinese President Hu Jintao in May 2003 to construct the pipeline.
Vainshtok said CNPC would finance a feasibility study for the pipeline and cover construction costs on Russian soil. The pipeline is to branch out from the still-unbuilt Far East pipeline at Skovorodino, about 70 kilometers from China.
The terms for the $400 million were unclear. Vainshtok classified the money as a “gift.”
“We have worked with them for two years, so CNPC should give us this gift, or liwu, as they say in China,” Vainshtok said, Interfax reported.
He said that the first installment would arrive this year, and construction of the Far East pipeline would be finished by the end of 2008.
The pipeline, which was to cost $2.5 billion and have a maximum throughput capacity of 30 million tons of crude per year, was due to become operational in 2005. Instead, however, Yukos has been crushed by the state through a series of multibillion-dollar tax claims, and the pipeline plans were first suspended and then attached to an appendix to plans by Transneft, the state-owned pipeline monopoly, to build a pipeline connecting eastern Siberia with Russia’s Pacific coast.
Putin told a business forum in Beijing on Wednesday that the pipeline would become a reality.
“If this project is successfully completed — and that is beyond doubt — it will provide for significant increases in the volume of oil supplies from Russia to China,” Putin told the forum, which Hu also attended, The Associated Press reported.
Rosneft president Sergei Bogdanchikov, playing up China’s need for energy, said Wednesday that his company also planned to expand its role in the region, Interfax reported.
He said Rosneft had signed agreements with CNPC to create joint ventures that would work on oil production and the marketing of refined oil products.
It was unclear which fields in Russia the Rosneft-CNPC oil venture would operate. Bogdanchikov said the venture would bid for licenses on the market and would have access to several exploration licenses held by Rosneft.
China has long been eyeing stakes in Russian energy companies but has yet to succeed in gaining access to Russia’s energy stock and vast hydrocarbon resources. The other venture would give Rosneft access to China’s growing retail market. Rosneft wants to sell gasoline in China, and the deal could position it to act fast should China move to liberalize its tightly regulated domestic fuel market.
The deals come on top of pledges this week to double Russian-Chinese trade by 2010 and to build two huge natural gas pipelines by 2011. With those promises, the Russian leadership appears to be signaling that China will become a major focus of Russia’s external economic relations — even though the substance of the deals has yet to be determined.