Tokyo and Moscow to build huge oil pipeline from Eastern Siberia

by Ikuko Kao

Tokyo and Moscow have agreed to build a huge oil pipeline from Eastern Siberia to Nakhodka on Russia's Pacific coast, a Japanese government official close to the negotiations said. Japan and China had proposed competing routes for the pipeline, which is expected to cost $ 5 bn to $ 8 bn. The agreement will mean a route close to that suggested by Japan but with a branch pipeline going to Daqing, site of China's largest oilfield.
"The final destination is fixed," the Japanese government official told. "The pipeline will definitely go to Nakhodka, and it will have a branch to Daqing."

The official added that Russia was still considering whether to first build the main pipeline to Nakhodka or the branch line to Daqing. The starting point will be Taishet, some 500 km (300 miles) northeast of where Japan had suggested, which was the city of Angarsk, according to industry officials.
The newly mapped route, taking the pipeline north of Lake Baikal, would help the economic development of northeast Russia and give Moscow control over exports to the United States.

Russian pipeline monopoly Transneft had proposed a deal with Japan to build the pipeline to the open port of Nakhodka, which is on the Sea of Japan near Vladivostok. But the plan took a knock last year when Russia and China signed a declaration that they would strengthen cooperation in the oil and gas sectors. The declaration included construction of a Russia-China oil pipeline, which was proposed by Russian oil producer Yukos. In February, Moscow said the China route had been ruled out for environmental reasons.
Japan and Russia will sign the agreement after Moscow deals with domestic matters related to the recent presidential election, the Japanese government official said, without specifying the timing.

The official has made repeated visits to Russia for talks on the issue, along with representatives of the Japan Bank for International Cooperation (JBIC). The earlier Japanese plan was to build a 3,900 km (2,423 mile) pipeline from Angarsk to Nakhodka that could transfer 1 mm bpd of crude oil.
The Taishet route would stretch more than 4,000 km (2,485 miles) and would likely go via Skovorodino, near the border with the Chinese autonomous region of Inner Mongolia, where the branch to Daqing would peel off. In either case, to fill a Nakhodka pipeline with crude oil would require development of untapped East Siberian oil fields. The branch line to China is estimated to cost $ 2.8 bn.
"Russia prefers the Taishet-Nakhodka line because it is in its national interests," said Kensuke Kanekiyo, an analyst at the Institute of Energy Economics, Japan (IEEJ).

As the main Taishet line would run through Russian territory, Moscow could control the entire line and directly export crude oil to Japan, South Korea and, most importantly, to the world's biggest energy user the United States, Kanekiyo said.
The Taishet line could create new jobs to build the line and to develop the East Siberian field, bringing a bonanza to northeast Russia, where economic development is slower than in other parts of Russia. The line would help Japan reduce its heavy energy dependence on the Middle East, and ease Japanese concerns about rising geopolitical risks in that region, both Kanekiyo and the Japanese government official said.

Resource-poor Japan meets almost all its energy needs from overseas. In 2003, Japan bought 87.1 % of its crude oil requirements from the Middle East.
In China, output from oilfields in the eastern and north-eastern parts of the country has dwindled after decades of production. Soaring energy demand driven by strong economic growth is now forcing Chinese oil companies to look both at home and abroad for new oil and gas supplies.

The full potential of the East Siberian oil field is still unknown, and Japan and Russia will need to seek partners for the investment, the Japanese government official said.
"We would want European and US oil majors to be involved," the official said. "Participation of majors would boost the credibility of the field as well."
Confirmed recoverable oil deposits amount to 6 bn barrels, IEEJ's Kanekiyo said, citing Russian government figures. He estimated the development of the East Siberian oil field could take more than 10 years and cost at least $ 20 bn.
"The cost could explode because the natural environment is harsh and there is no infrastructure," he said.

The API gravity of crude oil produced in East Siberia is estimated between 38 and 41, containing about 0.2 % of sulphur by gravity, Kanekiyo said. The oil would be blended and sold at an API gravity of 40, possibly competing with similar grades of crude oil such as Abu Dhabi's Murban, Kanekiyo said.
API gravity is an indicator of the gravity or density of liquid petroleum products devised by the American Petroleum Institute and National Bureau of Standards. Heavier oil has a smaller API gravity number.