On the third day of President Hu Jintao's state visit to Russia, China National Petroleum Corporation (CNPC) and Russia's private oil producer YUKOS signed an agreement, setting out key aspects such as the quality of oil to be supplied, contractual terms and the pricing formulas.

"The pipeline construction is the biggest project in Sino-Russian economic co-operation, and it is good news for both sides," said Ma Fucai, general manager of CNPC.

Under the agreement, CNPC agrees to purchase up to 5.13 billion barrels of Russian oil, worth some US$150 billion, between 2005 and 2030 supplied via the US$2.5 billion pipeline running from Russia's Siberian oilfield to China's petroleum center in Daqing.

"This (the pipeline) is the best choice for the least investment, shortest distance and lowest risk,'' Ma said.

The deal means the Russian government will put off, indefinitely, a rival project to the Japanese market, despite intense bidding from Tokyo to pull the oil its way.

On 29 April, Russian Prime Minister Mikhail Kasyanov revealed that a 3,800-kilometre line to Japan, stretching from Irkutsk to the Far East port of Nakhodka could be built only after more oil reserves are found and the Chinese market has been served.

Beijing-based analysts welcomed the deal, describing it is a mutually beneficial project for both China and Russia.

China became a net oil importer in 1993 and last year imported 70 million tons of oil. By 2005, that figure will have risen to 100 million tons annually.

Xing Guangcheng, deputy director of Institute of East European, Russia and Central Asian Studies with the Chinese Academy of Social Sciences, indicated that in the changing international arena, it would be disadvantageous if China only imported oil from a few countries.

"It is important for our energy security and strategy if we can import oil from Russia, a friendly neighbor,'' said Xing.

"We welcome this event as the logical outcome of a protracted process where economic interests prevailed,'' YUKOS spokesman Hugo Erikssen was quoted by the Moscow Times as saying.

The heads of both states gave the green light for the energy co-operation between the two corporations. President Vladimir Putin and President Hu Jintao signed a declaration Wednesday stating that the energy partnership between the world's second largest oil exporter and the world's most populous nation was a priority.

In addition to the pipeline deal, the two oil companies also signed an agreement, under which YUKOS would supply CNPC with 6 million tons of crude between 2003 0and 2006 by rail.

(China Daily May 29, 2003)