Cheap Russian Oil Starts Flowing To Northern China

The first Russian oil has flowed through the Daqing spur of the 2,750 kilometers pipeline connecting East Siberia to the Pacific Ocean (ESPO). The picture above shows the 1,000 kilometers spur at Mohe, where it enters China. Up to now China’s deliveries of Russian oil have come via Russia’s Far Eastern port of Kozmino to which it travels by rail from the Skovorodino terminal of the main ESPO pipeline.

The pipeline has been built by the Russian state companies, Transneft and Rosneft, using a 20 year $25 billion loan repayable in oil on favorable terms. China will be paying one-fifth as much for Daqing-delivered oil as it does for the supplies that come via Kozmino.

Russia sees a growing export market for its energy in China, though progress on oil stands in marked contrast to natural gas, the fuel to which China is switching from coal to generate heat and power. Negotiations over supplies and building the infrastructure to deliver them are stalled over price, and to a lesser extent some geopolitical jockeying in Central Asia. However, there has been agreement that Russia will start to supply China with Eastern Siberian gas in 2015.