China & Russian Ink Long-Term Pipeline Deal

China and Russia have agreed on the final key deals paving the way for a US$2.5 billion oil pipeline that will link Siberia and China. Yukos and CNPC signed a general agreement Wednesday on the main principles and understandings for a long-term contract to supply oil to China via a Russia-China oil pipeline.

The agreement was signed by Yukos CEO Mikhail Khodorkovsky and CNPC President Ma Fucai, who is accompanying Chinese President Hu Jintao in a state visit to Russia.

Ma Fucai said the supplies would begin in 2005 and volumes would be 20 million tons annually during the first five years and 30 million tons annually starting in 2010. The agreement is for a period of 25 years.

Under the agreement, CNPC agrees to purchase up to 5.13 billion barrels of Russian oil, worth some US$150 billion, between 2005 and 2030 supplied via the pipeline running from Russia's Siberian oilfields to China's petroleum center in Daqing.

The Russian government has decided to build a key oil pipeline from Angarsk in Western Siberia to Nakhogka in the Pacific coast on the Sea of Japan, with a 2,400-kilometer separate branch going to the northern Chinese city of Daqing.

The deal means the Russian Government will put off, indefinitely, a rival project to the Japanese market, despite intense bidding from Tokyo to pull the oil its way. Earlier this year, Russia said that a 3,800-kilometer line to Japan, stretching from Irkutsk to the Far East port of Nakhodka could be built only after more oil reserves are found and the Chinese market has been served.

In addition to the pipeline deal, the two oil companies also signed an agreement, under which Yykos would supply CNPC with 6 million tons of crude between 2003 and 2006 by rail.