China and South Korea are moving closer to pipelining natural gas from Russia's Eastern Siberia to their shores, under a US$20 billion project set to bound the three nations for decades.

A joint feasibility study is expected to be completed in the next few weeks, which will then be submitted to the respective governments for final approval, said officials from BP in an interview. BP is the major shareholder in Rusia Petroleum, the project's gas supplier.

The project aims to build a cross-border pipeline to carry 20 billion cubic metres of natural gas from the Kovykta field in Russia's Irkutsk Province to China's northeastern provinces, and then onto Beijing and the nearby Bohai Rim via domestic branches.

An additional 10 billion cubic metres of gas will be delivered to South Korea through an undersea pipeline in the port city of Dalian on the Bohai Rim.

Dr Neil Beveridge, commercial manager of Gas, Power and Upstream Department of BP China, said the construction of the pipeline could start in early 2005, if the relevant governments give the project the green light this year.

If all goes according to plan, the delivery of gas to China and South Korea is expected to be under way by 2008.

"Senior government officials have expressed their willingness to proceed with the long-discussed project as soon as possible following successful completion of the feasibility study," said Beveridge.

Analysts say the gas project is set to further deepen co-operation between China and Russia in the energy sector, a move which will help revitalize the Russian economy and alleviate energy shortages in China.

Late last month, the two countries clinched a US$150 billion deal to ship 700 million tons of Russian crude from Eastern Siberia via a pipeline to China over the next 25 years. The oil pipeline route parallels the proposed route of the gas trunk.

Beveridge said major partners of the project, including Rusia Petroleum, China National Petroleum Corp (CNPC), China's largest oil company, and South Korea's Kogas, have agreed the pipeline route and the timing for first gas supplies.

Negotiations are still under way on the price range for gas sales to China and South Korea, he said.

The proposed route circumvents Mongolia, which is believed to be preferred by China. Though a pipeline going through Mongolia to Northeast China could shorten the transport distance, China believes it is more secure by avoiding passing through a fourth country. Such a route could also facilitate construction as it follows the same route as the Sino-Russia oil trunk.

Daniel Teo, vice-president of Strategy and Co-operate Affairs of BP China, said that BP, as a major shareholder in Rusia Petroleum, would not rule out the possibility of agreeing to allow CNPC to take stakes in the Kovykta gas field.

"But there is no such discussion at this stage," he added.

Teo also said that BP hopes to participate in gas marketing in China as it has experience and expertise in that area.

As for the gas price, BP insisted that it would be competitive as compared with alternative forms of energy, including imported liquefied natural gas (LNG).

It is also likely to be cheaper than the average price of 1.35 yuan (16 US cents) per cubic metre for gas delivered by China's soon to be completed West-East Gas Pipeline. That pipeline, currently under construction by CNPC's listed firm PetroChina and a foreign consortium, will deliver gas from the country's far western frontier to Shanghai in the east by the end of this year.

To create sufficient demand, however, China still needs to create a level playing field for the gas to compete with cheap coal, said Teo.

At present, coal represents more than 60 per cent of the nation's total energy consumption, while gas accounts for less than 3 per cent. China is working hard to encourage the shift to gas consumption to reduce the pollution from coal burning.

In addition to the two pipelines, the country also plans to build more terminals along its coastal lines to handle imported supplies of LNG.
(June 10,2003 )(China Daily)