Problems in pipeline for Russia's oil dream

MOSCOW - Russia's plan to build an oil pipeline to the Pacific, equivalent to adding another Libya to the world oil market, risks foundering over money, politics, the environment and the question of where the oil will come from.

The US$11.5 billion plan, mooted four years ago by the Russian pipeline monopoly Transneft, promises Russia its biggest economic fillip since a financial meltdown in 1998.

At 4130km, almost as long as Chile, the pipeline, if it goes ahead, will pump 80 million tonnes of oil a year (1.6 million barrels a day) to the Pacific, where growing Chinese demand is gobbling up more and more of the oil shipped to the region.

"This project will allow our oil supplies to significantly change the geo-political situation," Transneft's chairman Semyon Vainshtok said. "Our oil will be competing with crude from the Middle East and our task is to make sure that we end up being the winners."

The pipeline route chosen by Russia last year was seen as a victory for Japan, since the oil will go to the Pacific market instead of being pumped straight into China's industrial north.

Transneft expects to finish the first stage at Skovorodino in mid-2008.

But analysts say it is too early for Japan to celebrate. They say Russia is taking a wait-and-see stance on oil supplies before deciding whether to build it.

- REUTERS