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China 'wants Siberian oil pipeline'

Staff and wires

China imports 1.2 million barrels of oil a day, mostly from the Middle East
China imports 1.2 million barrels of oil a day, mostly from the Middle East

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LONDON -- A Chinese victory in the auction for Russian oil firm Slavneft could help speed up a planned $1.7 billion pipeline to link Siberian oilfields with markets in China, project leader YUKOS said Monday.

According to Reuters news agency, China National Petroleum Corp (CNPC) shocked Russian oil firms last week by announcing it would bid for Slavneft, which produces most of its oil in Siberia, near the Chinese border.

CNPC's Hong Kong and New York-listed unit PetroChina is expected to invest in the Siberian oilfields at Angarsk. The planned 2,400-kilometer pipeline would run to Daqing in North China.

PetroChina has already signed up for one massive pipeline deal this year, joining forces with Shell, ExxonMobil and Russia's Gazprom in July to commit to the 4,000-kilometer West-East gas pipeline from Xinjiang province to Shanghai on China's east coast. (Full story)

"If CNPC wins the auction, it will solidify the (Angarsk-Daqing) pipeline project," YUKOS Chief Financial Officer Bruce Misamore told Reuters in an interview.

"It could drive the whole process forward substantially."

Misamore said that China wanted to acquire reserves in Russia, and Slavneft would provide that.

China has put an enormous effort into developing oil and gas supplies this year, including committing to imports of liquefied natural gas (LNG) from Australia and Indonesia, and taking stakes in those projects via the China National Offshore Oil Corp. (Full story)

In October, China's No. 2 oil producer Sinopec said it would invest $394 million for a 75 percent stake in the Zarzaitine oil field in Algeria. (Full story)

But the International Energy Agency (IEA) said in Beijing on Monday that more needed to be done to boost China's gas consumption, by deregulating prices. The IEA said high fixed prices would inhibit energy consumers in switching from coal to gas.

YUKOS, Russia's second-largest oil firm with production of 1.4 million bpd, has long advocated a 2,400-km pipeline to rectify a situation where Russia ships most of its energy west to Europe, instead of to the Asian giant on its doorstep.

Boost to Russian supply

China buys just 40,000 bpd from Russia, out of its total imports of 1.2 million bpd, most of which comes from the Middle East. The pipeline would boost Russian supply to 600,000 bpd.

"We want to progress the pipeline, China wants to progress the pipeline but they are a bit concerned about reserves," Misamore told Reuters. "Also we are yet to finalize equity interest in the project. That is key if we are to go ahead with financing."

Misamore, who joined YUKOS after 20 years with Marathon Oil, said "a lack of synergy" had prompted the company to stay out of the Slavneft race.

But he said that purchasing some of its assets from the auction winner could be an option.

The Slavneft sale is expected to net Russia over $2 billion.

YUKOS will likely overtake LUKOIL as Russia's largest oil producer next year if it can realise its plans to grow oil output 18 percent and exports by 40 percent in 2003.

Record capital spending

Most incremental output will be from new Siberian fields and the company has approved record capital expenditure of $1.75 billion for 2003, from $1.28 billion this year.

"Our major production focus is now on new field development -- the Priobskoye field and a group of fields called South Vasyugan that contain sizeable reserves," Misamore said.

YUKOS plans to produce 1.6 million bpd next year, exporting 1.05 million bpd, or an unprecended 63 percent of output.

Russia produces eight million bpd in total.

But Misamore said infrastructure constraints meant the marketing side of the equation was now driving production plans.

"We produce whatever we can market," he said adding that the China project and a planned ice-free port in Murmansk were key if Russian output and exports are to rise from current levels.

In July, PetroChina signed an investment deal with a group of international energy companies to build the 4,000-kilometer West-East pipeline from gasfields in Xinjiang province, adjoining Kyrgystan and Kazahkstan, to Shanghai on China's east coast.

PetroChina will have an interest of 50 percent in the 45-year project. Other investors are China's Sinopec with 5 percent and the international consortium with 45 percent. Consortium members include Shell, Russia's Gazprom and ExxonMobil.

PetroChina said the pipeline would be built in two phases. The 1,516-kilometer eastern section from Jingbian to Shanghai would be finished to allow gas supplies by the end of 2003, while the 2,484-kilometer western section from Lunnan to Jingbian would see gas supplies beginning in 2005.

Shares in PetroChina are 0.65 percent lower at HK$1.52 on the Hong Kong stock market near midday Tuesday. Sinopec is down 1.55 percent to HK$1.27 and CNOOC is 0.52 percent higher at HK$9.75.

The broader market, measured by the Hang Seng index, is down 0.53 percent to 9,816.03.

Reuters contributed to this report.

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