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China is expected to more than double its crude oil imports from Russia by 2006 through a rail link.

China National Petroleum Corp (CNPC), the nation's largest oil producer, has primarily agreed to buy 10 million tons of oil annually from OAO Yukos Oil Co - Russia's largest oil company - for six or seven years, said sources close to the deal.

The oil will be transported via the existing railway linking the Russian border town of Zabaikalsk and Manzhouli on the Chinese border.

CNPC President Ma Fucai and visiting Yukos Senior Vice-President Alexander Temerko signed the deal on Tuesday afternoon, sources said.

"Yukos has recently proposed to CNPC to increase its oil shipment to CNPC. The companies have basically agreed the trading terms, including the prices," said the source.

The price of oil delivered by the railway is more expensive than the price of oil agreed upon for the Sino-Russia trunkline, the source added.

CNPC signed a contract last March with Yukos to buy a total of 6 million tons of crude by rail between 2003 and 2006.

China imported 5.25 million tons of Russian oil last year, rising 73 per cent year-on-year. Nearly 4 million tons of the crude imports were delivered on the Zabaikalsk to Manzhouli Railway and more than 1.6 million through another railway starting from Erlianhaote in Inner Mongolia. The balance came from the shipments by sea.

Analysts said the deal is part of Yukos's efforts to increase its oil exports to China as it sees no breakthroughs in sight to the currently deadlock over the US$2.5 billion proposed Sino-Russia oil trunk line.

China and Russia signed a framework agreement in March to build an oil pipeline running from Angarsk in East Siberia to Daqing in Northeast China.

The trunkline would allow China to ship 700 million tons of Russia's crude through the pipeline to China over the next 25 years.

The deal, worth US$150 billion in total, would be the largest-ever bilateral trade between the two countries.

The Kremlin became ambiguous over the project after Japan offered a rival pipeline that will bypass China and stretch to Russia's Far East port of Nakhodka.

The Russian side later claimed that it needs more time to consider where the pipeline should be laid toward, although it did promise to increase the oil supply to China.

"One of the signals we see behind the increased oil transportation by rail is that the oil pipeline project may be further delayed," said Li Fuchuan, a Russian oil expert with the China Academy of Social Sciences.

"Russia is meeting its commitment to oil exports to China anyway, whether it is coming by a railway or via a trunkline," said Li.

But Li also said it may become even more difficult for Japan's proposal, which demands much more oil than the Chinese pipeline, to be realized in the short term.

Russia's State-owned railway company said last month it would increase its transportation capacity to ship 12 million tons from Yukos to China by 2006.

With the economy booming, China's oil imports reached an all-time high of 91 million tons last year, a jump of 31 per cent year-on-year.

About half of this oil came from the Middle East.

To reduce its heavy reliance on the unsettled Middle East, China has recently started to increase imports from such areas as Russia, Southeast Asia, South America and Africa.

During President Hu Jintao's visit to Gabon on Monday, China signed an oil import contract with Gabon, the African country's first crude export deal to China.

(China Daily 02/05/2004 page9)


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