There were many smiles and handshakes in Moscow last week as Russian and Chinese officials signed a deal aimed at supplying China with up to 600,000 barrels of oil a day while Beijing will lend Russian companies up to $30 billion for pipeline and oil field development. There have been several similar agreements in the protracted and sometimes nasty negotiations between Moscow, Beijing and Japan about bringing Russia's vast Siberian oil and gas reserves to the Asian marketplace. The guts of last week's agreement look very much like the first deal in 2002, but which have been overtaken by internal political power plays in Moscow and rivalry between China and Japan for the lion's share of Russia's Siberian crude. The current context, however, is that while Russia, the world's second largest oil exporter after Saudi Arabia, still wants to diversify its markets away from Europe and toward Asia, oil prices tumbling toward $50 a barrel make paying for the massive Siberian infrastructure projects a problem. But China has cash and a new willingness to put big bundles of it on the table in the form of loans to pay for the oil field development and pipeline construction that would deliver up to 600,000 barrels of oil a day, about four per cent of China's demand. With China's Premier Wen Jiabao and his Russian counterpart Prime Minister Vladimir Putin looking on last week, the main arm of Russia's state-controlled oil and gas industry agreed to guarantee those deliveries to China. In return China will offer long-term credits of up to $12 billion for Russia's state pipeline company Transneft and $15 billion to state oil producer Rosneft. The core project is the construction of a 4,000-kilometre pipeline from Taishet near Lake Baikal in Siberia, through the mid-point city of Skovorodino to the port city of Nakhodka facing Japan. onstruction of the first half of the pipeline started early in 2006 and is expected to be completed as far as Skovorodino by March next year at a cost of $14 billion. The stretch from Skovorodino to the sea at Nakhodka is predicted, somewhat optimistically, to be ready to run early in 2014. What last week's agreement adds, if it's completed, is a $800-million spur line south from Skovorodino south to China's refinery hub at Daqing to deliver the 600,000 barrels a day pledged. The problem will be to fill the pipeline, especially when Japan wants its share shipped by tanker from the Nakhodka end. The first China-Russia memorandum of understanding on this issue was in 2002. The idea then was to ship China about 560,000 barrels a day, eventually by pipeline, but as much as possible by rail in the interim. That tentative agreement fell foul of then president Putin's grave suspicions about the political ambitions of Mikhail Khodorkovsky who owned Yukos Oil. Khodorkovsky wanted to end run the state-controlled company Transneft by building his own pipeline to China from Siberia.
