China started construction of a crude oil pipeline to import oil from Russia Monday in Mohe in Northeast China's Heilongjiang province, following a loan-for-oil accord signed with Russia in April.

Vice-premier Wang Qishan, who was present at the launching ceremony, hailed the project as "an important step" towards a long-term, full-scale energy partnership between the two countries.

"Energy cooperation plays a vital role in Sino-Russian strategic cooperative partnership," Wang said.

"Construction teams from China and Russia should coordinate with each other to ensure the pipeline goes into full operation by the end of 2010."

The construction of the Russian section of the pipeline, with a total length of 64 km, started on April 27, while the Chinese section will run for about 965 km.

Chinese Vice-Premier Wang Qishan, right, at a ceremony marking the start of construction of the China section of a Sino-Russian oil pipeline, in Mohe, Heilongjiang province. [China Daily]

China agreed last month to lend US$10 billion to Russia oil pipeline monopoly Transneft and another US$15 billion to the state-run oil major Rosneft at a discounted interest rate of 6 percent in exchange for reliable fuel supply for the next two decades.

According to the agreement, 15 million tons of Russian oil every year, or about 300,000 barrels a day, will be transported from Russia's Siberian fields over the pipeline to China for the next 20 years, likely also at a discounted price. The crude oil supply is equivalent to about 4 percent of China's daily fuel consumption.

Zhang Guobao, Director of China's National Energy Administration (NEA), told China Daily on the sidelines of the launching ceremony that the pipeline's delivery capacity is very likely to be boosted to 20 million tons a year upon its completion.

China and Russia will study the feasibility of increasing its delivery capacity after the pipeline is put into production, Chinese Ambassador to Russia Liu Guchang told the official Xinhua News Agency last week.

Under the agreement, China and Russia will jointly build and operate the pipeline from Russia's Siberian city of Skovorodino to China's northeastern city of Daqing as its terminal via China's border city of Mohe.

The project was a win-win deal for both China and Russia "as it helped diversify China's oil import as well as Russia's oil sales", said Liao Yongyuan, vice-president of the country's largest oil and gas producer PetroChina Co which is responsible for the construction of the Chinese section of the pipeline.

Zhang of NEA yesterday told China Daily that the two nations will also consider cooperating for natural gas supply.

China's push to gain resources as the credit freeze, the collapse of the ruble and the depressed global commodity prices prompts countries such as Russia to sell energy assets, analysts said. Meanwhile, cash-rich Chinese oil firms are eager to secure a steady supply of oil to power the country's growth, in anticipation of an economic recovery.

PetroChina gained approval at its annual shareholders' meeting to raise as much as 100 billion yuan via debt this year to finance key projects including exploration, refining, oil and gas pipeline networks and overseas operations.

PetroChina is also building a pipeline that transports 20 million tons of Kazakhstan oil to China annually. The project will be fully operational by the end of the third quarter.

(China Daily May 19, 2009)