Diplomatic coup for Japan as Russia picks oil pipeline route

Ft.com ^ | January 4 2005 | David Pilling

[jb6]

Russia will by May draw up detailed plans for the financing and construction of an estimated $11.5bn oil pipeline to the Pacific following a decision over the new year to adopt a Japanese-proposed route over one that would have favoured China.

The long-expected decision to build the pipeline from eastern Siberia to the Pacific, from where oil can easily be transported to Japan, will be seen as a diplomatic victory for Tokyo over Beijing.

Japan and China have begun to tussle fiercely over energy resources since China recently outpaced Japan as the world's second biggest consumer, though not yet importer, of crude oil. Junichiro Koizumi, Japan's prime minister, personally lobbied for the Pacific route over the original plan to pipe oil to Daqing, China's traditional energy centre in the north-east. Tokyo has been struggling for three decades to reduce its dependence on Middle Eastern oil, which still accounts for 85 per cent of imports.

A senior Japanese government official yesterday welcomed the announcement, but said it was "a very basic decision" and that much would depend on the details.

He said that, if costs could be kept to $11.5bn (€8.5bn, £6bn), the project would be economically viable. He dismissed reports that the bill could escalate still further - to $15bn or even $18bn - as without foundation.

The official said the project would take between three and six years to build, but that it would be possible to export oil by rail before the pipeline was completed.

The pipeline, which will be built by Transneft, a Russian monopoly, will carry up to 1.6m barrels a day from Taishet in eastern Siberia to Nakhodka, near Vladivostok.

The original price tag for the 4,200km route was estimated at $6bn, but higher steel prices and environmental and other costs could at least double that figure.

Russia accepted Japan's argument that the Pacific route would enable it to export oil to several countries, including many in Asia as well as the west coast of the US.

The shorter and cheaper Daqing route, which had been supported by Yukos, the fallen Russian oil giant, would have locked Russia into the Chinese market.

Japan is expected to provide loans for the pipeline's construction, though it would not subsidise the project, officials said. Japanese companies were also likely to invest in upstream activities in Siberia.

[pierrem15]

The Bear hedges its bets.

[spetznaz]

This is not getting much play in the MSM, but it is really huge. Especially when you consider that some in China were really given the big middle finger on this one. LOL.