ESPO Oil Pipe Between Russia and China Nixes Years of Russia’s Dependency on European Markets

Chinese media has recently reported that an oil pipeline between eastern Siberia and the Pacific Ocean has been constructed and is now in operation as of this past weekend, moving an estimated 15 million metric tons of crude oil per year from Russia to China until 2030.  Since its operation, the pipe has moved approximately 42,000 metric tons (equal to about 1.1 ton) to energy-hungry China.  Russia’s Prime Minister Vladimir Putin called the pipeline a “multidimensional project” that would strengthen the Moscow-Beijing energy cooperation.

According to economics commentators, this is quite the strategic shift on Russia’s part.  Liam Halligan, Chief Economist at Prosperity Capital Management, considers that, “Russia can play one side off the other. Russia can command higher prices. Russia can expand its hydrocarbon exports.”

Now, Russia is extracting more oil than Saudi Arabia, making it the largest supplier yet and “fueling” its economic recovery.  Thus, Russia’s emergence has implications for the world oil market, especially because oil supplies are currently tight.  Will the United States, as the world’s largest oil consumer, find itself too dependent on Russia’s oil supply?

3 comments

  1. It’s clear that Russia’s emergence as a petro-power has led to great economic growth for the country. However it also appears that Russia’s increase in oil exports has not had a significant effect upon the United States.

    Statistics released by the Federal Government show that the United States is not overly reliant on Russia for oil imports. The U.S. currently imports more oil from Angola, Algeria, and Colombia than it does from Russia (http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html).

    Perhaps the US should be more concerned with the prospect of being excluded as a seller in the world energy market.

  2. It seems likely that at least states in the western part of the U.S. will need to rely on Russian oil. Recently, Alaska closed an oil pipeline after a leak was found in a pump house that supplied crude oil to several of the western states, including California, Washington, Oregon, Alaska, Nevada, Arizona and Hawaii. Analysts believe that at least some of the replacement oil will come from Russia’s East Siberian Pipeline. The oil from EPSO is said to be of higher quality than other oil, so it is likely that the U.S. will be attracted to it and will prefer it over other alternatives, such as Oman oil.
    Source: Christian Schmollinger, Alaska Pipe Closure May Draw Oman, Russia Oil to U.S. West Coast Refiners, BLOOMBERG (Jan. 11, 2011), http://www.bloomberg.com/news/2011-01-11/alaska-pipe-closure-may-draw-oman-russia-oil-to-u-s-west-coast-refiners.html.

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