OREANDA-NEWS. Chinese state-owned oil firm CNPC will begin work on a second connection with Russia's East Siberia-Pacific Ocean (ESPO) crude pipeline in June, with a view to opening it in early 2018.

Work on the 941km section linking Mohe, on the border with Russia, with Daqing in northeast China's Heilongjiang province, is due to be finished by October next year. When complete this will expand China's pipeline import capacity for Russian crude to 600,000 b/d, from slightly over 350,000 b/d currently.

The pipeline will require 3mn bl of line-fill, which CNPC may complete during the fourth quarter next year. This suggests the new pipeline will begin commercial operations in January 2018, in parallel with an existing 350,000 b/d one and in line with CNPC's revised timeframe.

CNPC has set aside Yn19.1bn ($2.94bn) for pipeline construction in 2016, the second largest budget of its five business segments. It previously estimated the ESPO expansion would cost Yn8bn, but because construction will be split between 2016 and 2017 half of the funding is likely to come from next year's capital expenditure (capex) allocation. But the capex burden is still going to weigh more heavily on CNPC's investment plans than originally scheduled. The oil giant delayed, from last year, an intermediate expansion of the pipeline to 440,000 b/d — this would have spread the cost over three reporting years — opting instead to bring the full expansion on stream at the later date of 2018.

Imports in the first quarter along the ESPO route averaged 320,000 b/d and are due to average 330,000 b/d for the year. CNPC's listed arm, PetroChina, operates 1.85mn b/d of refining capacity in northeast China. It allocates light sweet ESPO Blend to its 200,000 b/d Liaoyang, 100,000 b/d Harbin, 410,000 b/d Dalian and 200,000 b/d Jilin Petrochemical refineries under a long term loan-for-oil repayment deal with Russian state-controlled Rosneft. But CNPC has been taking 60,000-70,000 b/d by sea after butting up against the limits of the pipeline's capacity last year. It has also proved cheaper to move the crude by sea to coastal refineries such as Dalian, CNPC says.

Rosneft is due to increase supplies under its term deal with CNPC to 400,000 b/d this year, but will struggle to do this because the Kozmino terminal in east Siberia — point of origin of ESPO Blend seaborne loadings — is already operating at capacity.