Contract ensures more oil delivery to China

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Last updated at: (Beijing Time) Monday, March 29, 2004

Contract ensures more oil delivery to China

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OAO Yukos Oil Co - Russia's second-largest oil company - signed an agreement on Saturday with Russian Railways to more than double the railway delivery of oil export to China this year and increase the amount by five times by 2006.

The agreement came after the proposed US$2.5 billion Sino-Russian oil pipeline mired in the deadlock.

The two Russian companies agreed to raise oil exports by rail to 6.4 million tons this year from 3 million tons last year, according to a report by Xinhua.

The delivery is expected to increase to 8.5 million tons in 2005, and to 15 million tons by 2006. It will further increase from 2007.

Earlier in last month, China National Petroleum Corp (C NPC), the nation's largest oil producer, agreed to buy 10 million tons of oil annually from Yukos starting from 2006 for seven years.

The oil will be delivered via the existing railway linking Russia's Zabaikalsk and the Manzhouli area in China.

It is believed that Sinopec, China's second-largest oil company, will buy the remaining 5 million tons of Yukos oil via another railway linking the Russian territory to Erlianhaote in China's Inner Mongolia.

Yukos exported about 3 million tons of oil to China last year, accounting for 60 per cent of Russia's crude exports to China.

Russian company executives said they will invest 40 billion roubles (US$1.4 billion) to upgrade the railways and expand the transportation capacity to handle the oil exports.

The executives said that increasing oil exports by rail to China will be beneficial to both Yukos and Chinese oil companies, while the Russian Government is in the process of making its final decision on whether its crude oil pipeline should end in China or Russia's East Pacific port in favour of Japan.

China and Russia signed a non-binding framework agreement last March to build an oil pipeline, running from Angarsk in East Siberia to Daqing in Northeast China.

The trunkline would allow China to ship 700 million tons of Russia's crude through the pipeline to China over the next 25 years. The deal, worth US$150 billion in total, would be the largest-ever bilateral trade agreement between the two countries.

The project took a knock after Japan offered a rival pipeline that will bypass China and stretch to Russia's Far East port of Nakhodka.

The latest reports are stating that Russia is likely to build the trunkline to Nakhodka, and build a branch line to Daqing in China as a compromise.

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