Dec 21, 2010 05:31 PM

China-Russia Oil Pipeline Begins Operation

(Beijing) – A flow of crude oil from Skovorodino in Russia arrived at Daqing terminal in Northeast China on December 19, in preparation for full operation of the China-Russia oil pipeline expected to start in weeks.

According to the official website of the State-owned Assets Supervision and Administration Commission, the 300,000 tons of crude oil was pumped from Russia's Skovorodino station on December 12 and arrived at Daqing terminal on December 19.

The 999-kilometer long oil pipeline, which is operated by China National Petroleum Corporation (CNPC), is set to transport 15 million tons of crude oil from Russia to China for 20 years starting from January 1, 2011.

In April 2009, construction began on 72-kilometers of pipeline in Russia and 927-kilometers in China. The transportation capacity of the pipeline could reach 30 million tons per year.

The negotiations on a China-Russia oil pipeline can be traced back to 1994. But it was in February 2009 when the two countries signed an official agreement for the construction of a pipeline. Under the agreement, China will offer a total of US$ 25 billion in loans to two Russian oil companies – Rosneft and Transbeft, in exchange for 300 million tons of oil imports from Russia for 20 years.

According to data from the National Energy Bureau, China produced 189 million tons of crude oil in 2009 while imports reached 199 million tons. The country's reliance on oil imports hit 51 percent in 2009.

Statistics from the General Administration of Customs show that during the first half of this year, China's oil imports reached 118 million tons, including 8.69 million tons from Russia, a 7.4 percent of the total. As the operation of the China-Russia oil pipeline begins, the ratio is expected to rise. Some media reports have predicted that Russia will become one of the top three oil suppliers to China, together with Saudi Arabia and Angola.

The operation of the pipeline is also expected to help China adjust its oil import costs as well as domestic fuel prices. China's gasoline and diesel ex-factory prices are currently linked to the prices of Brent, Dubai and Cinta crude oil, but with increasing imports from Russia, Russia's Eastern Siberian Pacific Ocean (ESPO) crude oil will play a bigger role in the country's pricing system.


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