China to finish second ESPO branch next year

18 May 2017, Week 19 Issue 643

China expects to complete the domestic section of an oil pipeline that will carry crude from Russia by the end of 2018, the vice governor of China’s northeastern Heilongjiang province, Li Haitao, said on May 12.

It has also started laying the domestic leg of a Russia-China natural gas pipeline, he added. Both projects are being built on the Chinese side by China National Petroleum Corp. (CNPC).

The Heilongjiang section of the oil pipeline, which will run from Mohe at the Russian border to the Chinese city of Daqing, will have a capacity of 15 million tpy (300,000 bpd). The spur, which is part of the second East Siberia-Pacific Ocean (ESPO) pipeline project, will join an existing ESPO branch that has been delivering 15 million tpy of Russian crude to China since 2011.

CNPC has also started laying the China portion of a gas pipeline, dubbed the Power of Siberia, which will be capable of carrying 38 bcm per year of natural gas from Russia to China, according to Li.

“We expect both the oil and gas pipelines to be ready for operation around end of 2018,” the vice governor told reporters at the Belt and Road Forum, which saw Beijing play host to the representatives of 29 countries to promote trade and investment.

CNPC has said the Power of Siberia gas link will start delivering gas to China in 2019.

Gazprom’s CEO, Alexei Miller, said separately this week that the Power of Siberia gas pipeline project is running ahead of schedule. So far, 720 km of its total 3,000-km planned length has been constructed, he said. Gazprom expects to settle soon the main terms of gas deliveries to China via the link, he added.

Power of Siberia is a key component of a 30-year gas supply deal that Moscow and Beijing signed in 2014. Under the terms of the US$400 billion deal, CNPC will buy 38 bcm per year of gas from Gazprom, starting in 2025, although supplies will start ahead of that date on a smaller scale.

The annual volume of gas that CNPC will ultimately buy under the agreement equates to a fifth of China’s consumption and 60% of its imports in 2014.

Although the deal is of strategic importance for both countries, Russia needs it more.

Power of China

Moscow is relying on China to become a key market for Russian gas, but will have to compete with countless other suppliers globally who are also keen to win a share of the giant Chinese market as it shifts away from coal towards cleaner fuel sources.

Russia has committed to investing US$70 billion in the overall deal. This will include US$35 billion for the construction of the Power of Siberia pipeline, US$20 billion for field development and US$15 billion for a gas-treatment plant that will be built in partnership with local chemicals company Sibur on the border between Russia and China.

Russia’s perceived dominance in energy markets has led to a number of buyers seeking to source gas and oil from other countries in a bid to reduce that reliance. That makes selling to China more important than ever. Meanwhile, a deal that Chinese President Xi Jinping struck earlier this month with US President Donald Trump will also see the US sell more gas to China.

Heilongjiang Province’s contribution to China’s Silk Road efforts will involve helping expand trade and investment with Russia, Li said.

China’s Tianlangxing Power Equipment is separately leading investment in a planned joint venture refinery and petrochemical complex that will be located in Russia close to the Chinese border, Li said. That project will represent an investment of around 6 billion yuan (US$871.1 million).

“A pipeline will be built to supply refined fuel back to China,” he said, without providing further information.

Privately run Tianliangxing Power Equipment is currently building what will be its third solar power plant in Russia, Li added.

Edited by

Andrew Kemp


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