China Signs Deal With Russian Firm for Oil Shipments

2004-02-11
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Plan seen as poor second-best to postponed pipeline

China has signed a new deal to increase oil imports from Russia by rail, as Moscow drags its feet over a pipeline project that was scheduled to start last year. Analysts interviewed by Radio Free Asia (RFA) saw the deal as a poor substitute for a pipeline that could have solved many of China's energy security problems.

The deal, signed Feb. 3 by the president of China National Petroleum Corporation (CNPC), Ma Fucai, and a vice president of Russia's Yukos oil company, allows China to buy 10 million tons of crude oil annually for six or seven years starting in 2006.

While the amount in the agreement is nearly double the 3.8 million tons that Yukos plans to ship to China from its Siberian oilfields this year, analysts doubt that rail shipments are any sort of viable substitute for the pipeline — ; considered a done deal until Yukos' former billionaire chief executive Mikhail Khodorkovsky was arrested on charges of fraud and tax evasion.

"You'd much better want a pipeline than rail," Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, told RFA. "All sorts of bad things can happen to rail shipments, particularly weather and what have you. But a pipeline signifies a long-term commitment."

"The pipeline which is being pushed by Yukos is sort of on the back burner while the Khodorkovsky affair gets straightened out," Ebel said.

The project was to have been the mainstay of a friendship agreement signed by former President Jiang Zemin and Russian President Vladimir Putin in July 2001. The line was to be completed in 2005, bringing China 400,000 barrels of oil per day and rising to 600,000 barrels by 2010. But work on the line has yet to begin.

The amount in the rail shipment agreement would be equal to 200,000 barrels per day, compared with an average demand in China of 1.8 million barrels per day in 2003.

The 2,400-kilometer pipeline from Angarsk in Siberia to China's oil capital of Daqing has been held up by a host of problems. First, the Russian government argued with Yukos about running the line as a private venture, citing national security concerns. Then, it raised the question of whether the oil should go to Japan instead through a pipeline that would be more than double the distance and cost.

"In political terms, it doesn't represent much after the Treaty of Friendship in July 2001," said Philip Andrews-Speed, China energy analyst at the University of Dundee. "And whether the rail supplies are turned off for political reasons or just accidents or whatever, it's extremely unreliable from the point of view of physical availability of the oil, as well."

"If Russia is going to make that amount of commitment to develop the oil and put it into the wagons, then you ask, well, why don't they just build a pipeline?" Andrews-Speed said in an interview with RFA correspondent Michael Lelyveld.

Experts said recent claims by Russian officials that China could import up to 600,000 barrels per day by rail were simply unrealistic, reinforcing suspicions that the rail agreement was increasingly being seen as an alternative to the pipeline deal with Yukos.

"Rail transport of crude oil or products is a monstrously inefficient way of distributing things," said Sam Dale, Singapore bureau chief for Petroleum Intelligence Weekly . "It just doesn't sound doable. It doesn't sound cheap and it doesn't sound easy."

"The question is, is it worth the effort from the Chinese point of view, because they're going to have to put a lot of expenditure into unloading these trucks (rail cars), and why not just buy on the market?" Andrews-Speed said. "You then have to ask, is Russia going to commit to making enough oil available to fill these wagons for enough years. So it raises a lot of questions."

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