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. Last Updated: 07/27/2016

Pacific Pipeline Delayed Until 2015

Itar-TassTransneft chief Semyon Vainstok talking to Rosneft CEO Sergei Bogdanchikov before Thursday's Cabinet meeting.
Plans to build an oil pipeline to the Pacific coast will most likely remain on hold until at least 2015, waiting for the development of east Siberian fields, Deputy Industry and Energy Minister Andrei Dementyev told a Cabinet meeting Thursday.

But Transneft is on track to complete the first leg of the eastbound pipeline -- which starts near Irkutsk and ends at Skovorodino near the Chinese border -- next year, company president Semyon Vainshtok told the meeting.

"The second stretch will depend ... on putting into operation [fields] in eastern Siberia, and we believe that will happen not earlier than 2015 to 2017," Dementyev said in response to a question from Prime Minister Mikhail Fradkov at the meeting, which reviewed progress of the project.

The government expects oil companies will be able to produce 40 million tons of crude in the area by 2015, Dementyev said, whereas the pipeline's second stretch has the capacity for 50 million tons. Russia could supply 6 percent of the Asian Pacific market from the pipeline, Dementyev said.

The first section of the pipeline will have the capacity to transport 30 million tons per year. Russian oil firms, chiefly Rosneft, TNK-BP and Surgutneftegaz, intend to use the route to ship 29.8 million tons from their east Siberian fields in 2009, Vainshtok said.

Most of the crude will come from Rosneft's Vankor field, which is still being developed, meaning that Russia will not reduce exports to Europe, he said. Therefore, the large discount for the Urals blend, compared with the international benchmark Brent crude, will remain unaffected, Vainshtok said.

"Unfortunately for the Russian side, we will not be able to reduce our oil flows to Western Europe and force them to remove the discriminating pricing for Urals," he said, Interfax reported.

Rosneft is trying hard to begin pumping oil from Vankor by 2009. "Judging by Rosneft's capital expenditures there -- which are almost $1.5 billion in the first half of this year -- they will be able to produce a lot of oil in a short time," said Konstantin Gulyayev, an oil analyst at investment company Region.

Officials have yet to determine a price for usage of the new pipeline. With its cost rising to $11.3 billion last year, there have been plans to either raise the transit fee from the initial $38.80 per ton or recoup some of the construction outlays by charging higher transportation fees on existing routes.

Economic Development and Trade Minister German Gref told the meeting that oil companies would lose money if they paid a transit fee of more than $50 per ton, even if they did not have to pay the mineral extraction tax. He urged the government to work out a price by the end of the year.

In an effort to cut costs, Transneft is looking to employ 2,000 Chinese workers to build a 170-kilometer stretch of the pipeline, Vainshtok said. "If our Russian contractors don't agree to the price that we can pay for this difficult, sometimes dangerous work, we are forced to hire the Chinese," he said.

Oil from the first stretch of the pipeline, initially meant to supply China, could also go by rail to a Pacific coast terminal at Kozmino, which is currently under construction, Vainshtok said last week. Export shipments would be split equally between China and the Pacific coast in that case, he said.