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Crude Oil Quandary Raises Concerns

The growing signs that Russia may pull out of the proposed US$2.5 billion Sino-Russian crude oil pipeline has raised great concern among the Chinese partners in the project.

Chinese oil company officials say they are keeping a close eye on developments, but added that they would downplay worries to prevent pushing the Kremlin too hard on the matter.

On Friday, Russian Energy Minister Igor Yusufov said Russia is studying the construction of a US$5 billion to US$7 billion oil pipeline to its Pacific coast to export East Siberian crude to the United States and Asian customers, such as Japan.

The proposal, which is favored by Japan, conflicts with China's earlier scheme to build a direct link from Angarsk in east Siberia to Daqing in northeast China.

Chinese oil company officials said yesterday they have not received any official announcement from the Russian side that the Angarsk-Daqing project has been rejected.

"It is not the final decision by the Putin government," says an official with the China National Petroleum Corp. (CNPC), the Chinese company backing the project and the nation's largest oil producer.

The official indicated that there is still room for the Chinese government to lobby the Kremlin to stick with the Angarsk-Daqing proposal.

Experts say that even if the Russian side finally decides to bypass China and extend the pipeline to the Pacific coast, they would not rule out the possibility that Russia may build a spur on the trunk line to transport some of the crude to Daqing.

On Friday, Yusufov said China will have equal access to buy oil in the area close to the port of Nakhodka, where the future pipeline may terminate.

Experts warn that a collapse of the Sino-Russian pipeline project would damage the relationship between the two neighboring countries, both economically and politically. China had pinned high hopes on the crude oil pipeline after the two countries signed a non-bidding agreement for the project last March. The trunk line would allow China to import 700 million tons of Russian crude through the pipeline over the next 25 years.

The deal, worth US$150 billion in total, would be the largest-ever trade arrangement between the two countries.

CNPC officials say that China should try harder to get the Russian crude deal finalized, since the short transportation distance makes economic sense.

But it should also prepare for the possible failure of the agreement, they note.

Earlier this month, CNPC preliminarily agreed to buy 10 million tons of oil annually for at least six years from OAO Yukos Oil Co., Russia's largest oil company.

"One of the signals we see behind the increased oil transportation by rail is that the oil pipeline project may be further delayed," says Li Fuchuan, a Russian oil expert with Chinese Academy of Social Science.

Meanwhile, China is also mulling over possibly building a similar crude oil pipeline from Kazakhstan to its western Xinjiang Uygur Autonomous Region. Once completed, the 1,200-kilometer-long pipeline would be able to deliver up to 20 million tons of crude to western China annually.

The government is evaluating the economic feasibility of the project, which is projected to be much more expensive than the Russian crude plan.

Last year, China imported 5.3 million tons of Russian oil, a jump of 73 percent year-on-year.

(China Daily February 24, 2004)

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