Russian, Chinese Oil Companies Sign Long-term Oil Supply Agreement

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Last updated at: (Beijing Time) Thursday, May 29, 2003

Russian, Chinese Oil Companies Sign Long-term Oil Supply Agreement

China and Russia Wednesday inked one of the key final deals paving the way for a US$2.5 billion oil pipeline stretching across the vast expanse of Siberia and into China.

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Russia's Yukos oil company and China National Petroleum Corporation (C NPC) 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 from 2010 on. The total period covered bythe agreement is 25 years.

"The pipeline construction is the biggest project in Sino-Russian economic co-operation, and it is good news for both sides,'' said Ma.

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 US$2.5 billion pipeline running from Russia's Siberian oilfield to China's petroleum centre in Daqing.

"This (the pipeline) is the best choice for the least investment, shortest distance and lowest risk,'' Ma said.

Mikhail Khodorkovsky said the deal would be worth 150 billion US dollars over the 25 years and the Russian budget stood to receive about 60 billion dollars.

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.

On 29 April, Russian Prime Minister Mikhail Kasyanov revealed that a 3,800-kilometre 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.

Beijing-based analysts welcomed the deal, describing it is a mutually beneficial project for both China and Russia.

Russia and China signed an intergovernmental agreement on the oil pipeline three years ago, and China has spent several million dollars to carry out a feasibility study on the project.

China became a net oil importer in 1993 and last year imported 70 million tons of oil. By 2005, that figure will have risen to 100 million tons annually.

Xing Guangcheng, deputy director of Institute of East European, Russia and Central Asian Studies with the Chinese Academy of Social Sciences, indicated that in the changing international arena, it would be disadvantageous if China only imported oil from a few countries.

"It is important for our energy security and strategy if we can import oil from Russia, a friendly neighbour,'' said Xing.

"We welcome this event as the logical outcome of a protracted process where economic interests prevailed,'' YUKOS spokesman Hugo Erikssen was quoted by the Moscow Times as saying.

The heads of both states gave the green light for the energy co-operation between the two corporations. President Vladimir Putin and President Hu Jintao signed a declaration Wednesday stating that the energy partnership between the world's second largest oil exporter and the world's most populous nation was a priority.

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

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