First Section of Siberian-Pacific Pipeline Flows Oil

December 29, 2009

Russian Prime Minister Vladimir Putin launched the country's long-awaited Siberian oil export route Monday, giving energy-hungry Asia a new supply source from the world's largest crude oil exporter that is seeking to diversify its client base away from Europe.

Putin pushed a button that initiated the first filling of an oil tanker bound for Hong Kong at a new oil terminal near the Russian Pacific port of Nakhodka, the projected terminus of the new Siberian oil pipeline.

"For Russia this is truly a serious event," Putin said during the inauguration ceremony of the terminal at the port of Kozmino near Nakhodka, in comments broadcast on state television.

"This is a strategic project because it allows us to enter completely new, growing, promising markets of the Asian Pacific region," Putin said.

"This is the completion of one of the largest projects in modern Russia. And not only modern Russia. It would be a grandiose project for the former Soviet Union too."

Earlier this year, Russian oil pipeline monopoly Transneft completed the construction of the first 2,694-kilometer section of the oil pipeline known by the acronym ESPO [Eastern Siberian Pacific Ocean] linking Taishet in eastern Siberia with Skovorodino in the Amur region.

This portion of the project also included the construction of the Kozmino oil port inaugurated by Putin.

The second portion, a 2,100-kilometer stretch of pipeline, will run from Skovorodino to the Kozmino port.

For now, oil is being delivered by rail from Skovorodino to the Kozmino port where it is then to be pumped into tankers for shipment to markets in Asia.

Putin said the state-of-the-art terminal, had cost 60 billion rubles ($2.03 billion) to build.

The first tanker, The Moscow University, was set to deliver the ESPO crude -- named after the pipeline and belonging to state oil company Rosneft--to Hong Kong, said Transneft president Nikolai Tokarev.

Russia has surpassed Saudi Arabia as the world's top world oil exporter due to output quota cuts by the Organization of Petroleum Exporting Countries and to new oil fields in Siberia coming on line.

Transneft and the Chinese oil group CNPC in October 2008 signed an agreement on the construction of a 67-kilometer branch line to China which will initially carry 15 million metric tons of oil a year when it becomes operational.

Chris Weafer, chief strategist at Uralsib Bank in Moscow, said the opening of the new route would give Russia new export outlets and ease "the threat to export growth...poised by the congested Bosporus."

Russia has been keen to diversify its client base beyond its traditional European consumers, who have in turn in recent years been looking for ways to reduce their heavy dependence on Russian energy.

Denis Borisov, an oil and gas analyst with Bank of Moscow, said the launch of the new route would also signal important consequences at home.

The new route "could inspire companies to invest in geological exploration" in eastern Siberia where "multibillion-ruble investments are needed," he said.

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