The opening of an East Siberia pipeline means that China may soon displace Europe as Russia’s biggest customer for oil. This is going to be big on both sides of the border.
When Vladimir Putin opened the Russian side of the pipeline, he noted that production from Rosneft (thinly traded as RNGZY, quote), Gazprom (OGZPY, quote) and Lukoil (LUKOY, quote) currently goes almost exclusively to Europe.
However, China is notably closer to the potentially huge East Siberia fields and will be an eager customer for the roughly 220 million barrels of oil the pipeline will carry in its initial phase of operation. At peak capacity, the pipeline could feed about 365 million barrels of Chinese demand per year.
The news of fresh imports takes the near-term pressure off refiner Sinopec (SNP, quote) to line up potentially expensive foreign oil sources on its own behalf.
Interestingly, Russia is also planning on launching its own retail gas station network within China. The impact of this on SNP’s entrenched retail operation remains to be seen, but the company’s monopoly privileges may help it brush off any potential competitive pressure.