Russian Crude Oil Exports to the Far East – ESPO Starts Flowing

December 17, 2009

Russia’s crude oil production rose to 10.02 million barrels/day in November, gaining 2.6% year on year and, according to the president of Russia’s national oil pipeline operator Transneft, Nikolai Tokarev, is expected to grow to 11 million b/d after 2012. The start of the ESPO crude exports will be a major step for Russia’s oil export infrastructure, which is currently heavily focused on moving oil west toward Europe. The initial stage of the ESPO pipeline, which runs for 2,757 km from Taishet in East Siberia to Skovorodino in the Amur region Russia’s Far East, near the border with China, has a capacity of 600,000 b/d. Capacity is slated to grow to 1 million b/d by 2012 in the second stage of the project, and potentially to as much as 1.6 million b/d at a later date.

              From Skovorodino, 300,000 b/d will be transported by rail to a new export terminal at Kozmino on the Pacific coast, and eventually another 300,000 b/d will be delivered to China, after an offshoot from Skovorodino to the Asian country is completed at the end of 2010. The offshoot from Skovorodino to Daqing will be built by CNPC, with only 64 km to the border to be constructed by Transneft. Rosneft has signed a 20-year contract with CNPC for the delivery of 300,000 b/d from Skovorodino, and supplies to China through the pipeline could increase beyond this in the future, according to Rosneft. The price at Skovorodino for deliveries into China will be equal to the FOB Kozmino price, with no premiums or discounts being applied, sources involved in negotiations told Platts. Russia’s deputy prime minister Igor Sechin estimated the contract signed between Rosneft and CNPC to be worth at least $100 billion. The contract envisages total oil deliveries of 300 million mt (close to 2.26 billion barrels) over 20 years.   Equipment testing at Kozmino, the final point and the loading terminal of the Eastern Siberia Pacific Ocean crude pipeline, was completed November 24.

               The Kozmino testing was done following the filling of the port installations with technical crude oil. The port has received 102,500 mt of the crude, equating to more than 750,000 barrels. The technical oil, oil which remains within the system for operational purposes, belongs to Transneft and will not be sold in the market, remaining on the company’s balance sheet, the port authority said.

 The terminal at Kozmino will have initially a tank farm with capacity of 350,000 cubic meters (close to 2.6 million barrels) and a loading capacity of 300,000 b/d. The first rail tanks with crude oil for export left Skovorodino pipeline delivery station in Russia’s Amur region November 30 for the port of Kozmino, carrying 4,890 mt of crude oil in 82 carriages, according to Vostoknefteprovod. Vostoknefteprovod, a company affiliated with Transneft, was created to operate the new Eastern Siberia Pacific Ocean oil pipeline. The Skovorodino delivery station has a storage capacity of 80,000 mt and a loading installation for 82 rail tanks, with