The Russian state oil pipeline company Transneft is just weeks away from taking the East Siberia-Pacific Ocean (ESPO) oil pipeline to the Chinese border, Russian Prime Minister Vladimir Putin told the lower house of the Russian parliament.

In February this year, Russia and China signed an intergovernmental agreement for Russia to supply China with 15 million tonnes of oil (300,000 barrels per day) annually for the next 20 years in exchange for a $25-billion loan to Russian companies Transneft and Rosneft for pipeline and oil fields development (See: China, Russia sign $25-billion loan-for-oil deal). 

"In a few weeks, the phase of the pipeline, which will reach the Chinese border will be completed and then we will advance to the Pacific Ocean," Putin told the state Duma, reports Russia's Interfax news.

It also reported Putin having said that excluding Russia from the global energy decision making would be counterproductive, referring to the Ukraine-EU declaration on modernising the gas transport system that carries Rusian gas to Europe via Ukraine's pipelines. The EU-Ukraine accord could trigger a retaliatory price revision by Russia and impact natural gas production in Central Asian.

"We are sure that new energy transportation routes being developed by Russia, such as Nord Stream, South Stream, the Caspian Gas Pipeline and the Burgas-Alexandroupolis oil pipeline are economically viable and would continue to implement them," he said.

 Transneft is one of the largest networks of oil pipelines in the world which transports about 93 per cent of the oil produced in Russia. It operates a transportation network comprising over 30,000 miles of pipeline, about 390 oil refilling (pump) stations, and more than 830 reservoirs capable of storing more than 15 million cu. meters of petroleum products.

At 2,900 miles, the East Siberia-Pacific Ocean oil pipeline is expected to be the world's longest, originating in East Siberia at Taishet to Skovorodino on China's northeastern border and extending to a Pacific port at Kozmino Bay.  It would help unlock the vast oil reserves in East Siberia, which Russia intends to export to the Asian Pacific markets of Japan, China and Korea.

It traverses Skovorodino in Russia to Daqing via Mohe in northeast China's Heilongjiang province. With about 70km of the pipeline in Russia and 960km in China, the pipeline is expected to transport 30 million tons of petroleum from Russia to China per year. The construction of the section in Russia is estimated to have cost $600 million.

The pipeline is slated to pump up to 1.6 million barrels of crude per day from Siberia to Russia's Far East and then onto China and the Asia-Pacific region.

The second leg of the pipeline will stretch 2,100 kilometers  from Skovorodino to the Pacific, pumping 367.5 million barrels of oil annually. The capacity of the Taishet-Skovorodino pipeline, being built as part of the project's first leg, is also expected to increase to 588 million barrels from the initial 220.5 million bbl.

The pace at which China has been growing it has surpassed Japan to become the world's second-largest consumer of oil.  China has been attempting to secure guaranteed supplies of natural resources by strategic takeovers and investments in other countries. (See: China's ambassador defends Australian investments  and China's CNPC signs $3-billion deal to develop Iraqi oil field)

China is concerned over its oil dependence on the Middle East from where oil is shipped through the Strait of Malacca, which connects the Pacific Ocean to the east with the Indian Ocean to the west, and has a US naval presence.

China is reported to be keen to diversify its energy supply base by developing oil and gas pipelines and oil fields with Iraqi, Russian and Kazakhstan's cooperation, that would bypass any American-influenced regions.

The Kazakhstan's Atasu-Alashankou-China oil pipeline is China's first direct oil import pipeline, which commenced from May 2006, was built and is operated by MunaiTas a joint venture between China National Petroleum Corporation (CNPC) and Kazakh oil company KazMunayGas.

Currently, the Kazakhstan-China oil pipeline brings oil from the Kumkol and Aktobe region's fields. In future the main supply source is expected to be the Kashagan field. The pipeline is also used also for transporting oil from Russia's western Siberia, connecting with the Omsk (Russia) -Pavlodar (Kasakhstan) -Shymkent - Türkmenabat (Turkmenistan) pipeline in Atasu oil terminal. Oil is transported through this pipeline by Russian companies TNK-BP and Gazprom Neft.

China fears a possible energy disconnection in the future from the Middle East transported via the Strait of Malacca in the event of a major dispute with the US, and has strategically started diversifying its oil supplies from Russia.

ESPO's significnce to Japan
The ESPO pipeline therefore has significant geopolitical significance as the route it traverses are significant to both the Chinese and Japanese economies. 

Japan also imports the bulk of its oil from the Middle East with the major part of the pipeline passing through the Strait of Malacca. Japan has been trying to diversify its sources of energy imports and is also interested in the ESPO for securing its energy supply, while Russia had been keen on using the route to leverage its territorial claims over Japan.

In August 2008, Japan Oil, Gas and Metals National Corporation (JOGMEC) said it would join oil deposit exploration and development in the Republic of Yakutia in north-east Russia, as the East Siberia - Pacific Ocean (ESPO) oil pipeline was expected to start soon.

The Japanese government-funded JOGMEC started oil exploration work in East Siberia together with Russia's United Oil Group Ltd. in October 2008 and signed an agreement for joint exploration, development, production and marketing.

For Russia, the pipeline represent a new export market in China and possibly other markets in East Asia, instead of being tied down to European demand.