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14 years' tough talks finally lead to win-win China-Russia oil deal

By Wu Qiong and Lin Jianyang | May 21, 2009, Thursday | Print Edition

CHINA, the world's second-largest oil consumer, is getting closer to ensuring steady supplies from Russia, the world's second-largest producer, as construction on the China section of an oil pipeline linking the two nations started on Monday.

In a ceremony, Chinese Vice Premier Wang Qishan declared the commencement of the China section in Xing'an Town in the border county of Mohe, northeastern Heilongjiang Province.

Wang called the pipeline a "substantial" step forward toward long-term energy cooperation between Russia and China.

The 1,030-km line runs from Russia's Siberian city of Skovorodino to the Chinese terminal in the northeastern city of Daqing, via Mohe. The construction of a nearly-63-km section in Russia, from Skovorodino to Mohe, started on April 27.

The line is a branch of Russia's Eastern Siberia Pacific Ocean trunk oil pipeline, which runs from Taishet to the Far East port of Nakhodka.

The branch line into China is expected to become operational by the end of next year and would transport 15 million tons of crude annually from Russia to China between 2011 and 2030.

Xia Yishan, head of the China energy strategy research center under the China Institute of International Studies, said the final agreement on the pipeline took 14 years of negotiations, but was mutually beneficial to both countries.

Cold shoulder

Talks on the pipeline were initiated shortly after Boris Yeltsin, then President of Russia, visited China and signed agreements on energy cooperation between the two nations in 1996.

Xia, who is familiar with the pipeline talks, said political and economic changes inside the two nations, as well as fluctuations in global crude prices, were key factors behind lengthy negotiations.

Talks on the pipeline between the two governments roughly fell into four phases, according to Xia.

He said during the first five years of talks, until 2000, China turned a cold shoulder to Russia's enthusiasm, as China's oil imports were only small and crude prices were low. China missed the opportunity when Russia was anxious to turn oil assets into capital to fuel its slipping economy after the collapse of the Soviet Union, Xia said.

Between 2001 and 2004, China began to seek progress on the pipeline because of increasing oil demands from an accelerating economy and rising global crude prices, while Russia became cautious over oil exports in order to maximize proceeds after its economy recovered, Xia explained.

Price

Both sides worked to finalize the deal after 2004, as Russia moved to try to raise the proportion of oil exports to East Asia to 30 percent so as to reduce its heavy reliance on Europe.

However, the two sides failed to reach an agreement before the financial crisis struck as they disagreed on crude prices, according to Xia.

Russian negotiators turned active again following the outbreak of the global financial crisis and slumps in crude prices since the second half of last year, as they needed capital injection from the Chinese side, said Xia.

The two sides agreed to build the pipeline from Siberia to China on October 28, along with several other cooperation agreements, after talks between Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin.

Andrey Ostrovsky, vice director of the Far East Institute of the Russian Academy of Sciences, told Xinhua via e-mail that one of the reasons for lengthened talks was that oil prices offered by the Chinese side were deemed too low for Russian producers.

Another reason was that Russia's exploration of oil and gas in Eastern Siberia was inadequate and accurate estimates of oil assets in the region were unavailable, Ostrovsky added.

Xia also said that alterations in the pipeline's route, involvement of Japan which wished for more access to Russia's oil, and conflicts and fights among Russian firms also played a role in delaying a resolution.

China has been aiming to reduce its reliance on the Middle East for oil supplies to avoid risks from regional conflicts and pirates.

(The authors are Xinhua news agency writers.)

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