BP maps route for Siberian gas pipeline

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The Independent Online

BP is finalising plans for a $12bn (£7.2bn) gas pipeline from Siberia to serve east Asia that could pass through the "rogue state" of North Korea.

A consortium led by BP-TNK, the British energy giant's Russian joint venture, will this week present a feasibility study to the Russian government for the 5,000km (3,100-mile) pipeline.

The aim is to serve China and South Korea from the giant Kovykta gas field in Siberia, but it is unclear how the pipeline will reach South Korea. The most direct route, an option explored in the study, is to take the pipeline through the nuclear-armed dictatorship of North Korea.

The alternative, longer, route would take the pipeline straight from China to South Korea by going underwater across the Yellow Sea. What has been decided is that the pipeline will skirt around Mongolia to go through the Chinese city of Harbin.

The Yellow Sea option is considered much more likely, both for the obvious security reasons and because energy companies prefer to take pipelines through countries that will buy some of the oil or gas. There is no viable market for imported gas in bankrupt North Korea.

In addition, the South Korean government is against a route that goes through its northern neighbour, as the two countries are still technically at war. However, even underwater the pipeline would pass by the North Korean coastline.

The Kovykta field, near the gigantic Lake Baikal in south-central Siberia, is being developed by Rusia Petroleum, a company in which BP-TNK has a 70 per cent stake. It is hoped that construction of the pipeline will begin in 2005 and it should be functioning in 2008. Gazprom, the Russian gas giant, has opposed the scheme but has been invited to join it, if it can do so on "commercial terms".

China is seeking to move away from its traditional reliance on coal and on supplies of oil from the Middle East. Gas consumption is set to soar in the booming economy.

Kovykta is the largest known gas field in Siberia, with estimated reserves of 1,800 billion cubic metres, worth more than $100bn at current prices. The project will supply 20 billion cubic metres a year of gas to China, two thirds of the country's total consumption last year. It will also provide South Korea with 10 billion cubic metres annually, over 20 to 30 years.

One industry source said: "Rusia Petroleum is looking at all sorts of routes. But the most commercial route in the study is the one that goes across the Yellow Sea."

There is a separate oil pipeline project, proposed by the Russian oil giant Yukos, which would also pass by Lake Baikal, the deepest fresh water lake in the world, on its way east to serve China and Japan. These schemes have already attracted protests from local people worried about their environmental impact.

BP is the company behind a highly controversial pipeline from Baku in land-locked Azerbaijan to a port in Turkey.

The Kovykta scheme will be financed through a mixture of debt and equity, with the World Bank likely to be called upon to provide some of the funding.