Pipeliners

03.05.2005 The Moscow Times - Japan is threatening to withdraw its offer to help finance an $11.5 billion oil pipeline from Siberia to the Pacific coast if the government goes ahead with a plan to build a spur to China first, the Financial Times reported Friday. Energy-hungry China and Japan have been competing for the rights for first access to Siberian oil for years. When Russia finally announced last year that it would build the pipeline to the Pacific coast, it was seen as a victory for Japan. But Japan's trade minister, Shoichi Nakagawa, told the FT last week that Moscow had raised the possibility it could build the 4,100-kilometer pipeline in two stages and extend a spur from Skovorodino in eastern Siberia to China. Industry and Energy Minister Viktor Khristenko signed off on a decree last week that ordered the first $6.5 billion section of the pipeline to be laid from Taishet in the Irkutsk region to Skovorodino by late 2008. While work begins on the second section of the project to extend the pipeline to the Pacific coast, the oil would be transported by rail to a terminal on the coast. But Skovorodino's proximity to the Chinese border, just 69 kilometers away, throws open the possibility that a spur to China could be built before the Pacific coast link is finished, the paper reported. Building a spur to China first could endanger the completion of the link to the Pacific, particularly if exploration in eastern Siberia yields disappointing results or does not proceed at all. The Trans-Siberian link is planned to have an initial capacity of 600,000 barrels per day and to climb after completion of the second phase to 1.6 million bpd. China would easily consume the initial 600,000 bpd, opening the possibility that the second stage might not go ahead. Oil pipeline monopoly Transneft did not rule out that China might be able to tap into the pipeline first through the link to Skovorodino. "We are building a pipeline across our own territory. No one will decide for us who gets oil through it first," Transneft vice president Sergei Grigoriyev told the FT. "If the pipeline stops halfway, then there's a big risk that the oil will never reach Japan," said Nakagawa, whose ministry is in charge of Japan's energy policy, the FT reported. "The point I made [to Russia] is, we would not be able to provide taxpayers' money for such a risky project." Grigoriyev, however, said Japanese funding was not necessary to complete the project, the FT said. Russian oil firms, meanwhile, are indicating that proposed transport charges for the pipeline are too high to make the development of eastern Siberian fields commercially viable. "In the current circumstances, oil firms have no interest in developing new regions, especially east Siberia," the president of No. 4 oil firm Surgutneftegaz, Vladimir Bogdanov, told Prime-Tass. He called on the government to cut taxes for those firms that would develop eastern Siberia and use the expensive Asian pipeline. Transneft head Semyon Vainshtok told Kommersant last week that the average shipping fee on the route would be $49.90 per ton -- lower than expected but twice as high as the current fees from western Siberia to Europe. "We are going to apply a special price -- the closer [oil is produced] the more expensive it would be, the further, the cheaper. Then oil firms would be free to decide which market [Asian or European] they prefer," he said. Transneft has said that the first shipments via the pipeline would rely on crude from western Siberia, as the region is already connected to Irkutsk, but that it would need 1 million bpd from eastern Siberia to fill the pipeline completely. Bogdanov, however, said the price should be set at a maximum of $30