Japan keeps cool over reports Russian oil line may not reach it

Japan keeps cool over reports Russian oil line may not reach it

Tokyo (Platts)--28Apr2005


Tokyo is not showing any signs of panicking yet on reports it might lose out
on up to 1-mil b/d of keenly contested pipeline crude supplies from new field
developments in Russia's East Siberia, but remains hopeful its promised soft
loans to Moscow for the $11-bil project could sway the decision in its favor.
Japan is still prepared to "support" the construction of the pipeline was the
somewhat euphemistic reply of the Minister of Energy, Trade and Industry,
Shoichi Nakagawa, at a press conference Thursday morning, when asked to
respond to reports that Moscow might truncate the route at Skovorodino, about
halfway to the Pacific Ocean port of Perevoznaya opposite Japan if it decides
it doesn't have enough oil reserves. "The project is a joint cooperation
between Russia and Japan, and should be mutually beneficial to both parties,"
Nakagawa added, not letting his audience in on any concern or consternation
that might lurking within his ministry over the issue of this vital pipeline.

The pipeline plan has long been the subject of a fierce tussle between Japan
and China, both trying to grab the potential 50-mil mt/year (1-mil b/d) of
crude supplies for their energy-hungry markets. A Japanese proposal to lay the
pipeline from Taishet in East Siberia to virtually its doorstep near Nakhodka,
was rivalled by China mooting a shorter and cheaper line to its northeastern
city of Daqing. Last December, Moscow decided on the Pervoznaya option. This
Wednesday, Russian energy minister Viktor Khristenko formally ordered the
start of the first phase of pipeline construction to Skovorodino on the
Russian border with China, which is expected to be finished by late 2008. Some
news reports now suggest the route could end at Skovorodino, the end of phase
I development, should Russia not find enough oil reserves to justify the full
line. This could turn China into a surprising last-minute winner, as
Skovorodino has been flagged as an origin point for a 30-mil mt/year branch
line to Daqing. China currently takes in Russian crude supplies by rail.

Japan's top financial daily the Nikkei Shimbun Thursday quoted an anonymous
official from the Russian energy ministry as saying that Moscow would drop
plans to extend to Perevoznaya the pipeline project being executed by
Transneft if no additional oil reserves are found in east Siberia within the
next three years. Similar reports have also lately emerged in the Russian
press. Japanese sources earlier had also expressed skepticism that the line
would come all the way to Perevoznaya if the spur to Daqing gets built, given
the question mark hanging over the exact oil reserves in the East Siberian
fields. Last week, Nakagawa told visiting Russian energy minister Khristenko
that Tokyo was prepared to finance a part of the pipeline costs provided it
got an assurance from Moscow that the route will come all the way to
Perevoznaya. Japan has earlier offered Russia soft loans to support the
project, expected to cost around $11-bil and start up sometime after 2008.

In Thursday's press conference, Nakagawa acknowleged that a discussion on the
oil reserves figure had taken place between himself and Khristenko. The
minister recalled: "Khristenko was confident that there are enough reserves,
but we won't know until they start drilling." Most of the fields in East
Siberia are poorly explored, but possible untapped reserves are estimated at
45.9-bil mt of oil equivalent and commercial reserves at 1.7-trillion cu m of
gas and 230-mil mt (1.68-bil bbl) of crude, according to Russia's natural
resources ministry. The race between China and Japan, the second and third
largest oil consumers in the world, has been hotting up in recent years. China
has some domestic crude production, though largely static, and imported
2.7-mil b/d in March. Japan, which is totally dependent on imports to meet its
crude needs, bought about 4.5-mil b/d last month. The two neighbors are
currently also locked in a battle over gas fields in overlapping waters of the
East China Sea.

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