Russia completes Asia oil link as Europe frets
* Putin to officially launch oil link to Pacific
* May cut oil supplies to Europe
* Analysts question ability to fill new pipeline
By Vladimir Soldatkin
MOSCOW, Dec 24 (Reuters) - Russia has completed its largest infrastructure project since the Soviet Union by expanding its eastern oil pipeline to the Pacific Ocean as it seeks to carve out a bigger share of the Asian market.
It took 6 years and more than $25 billion for oil pipeline monopoly Transneft to build the East Siberia - Pacific Ocean (ESPO) link to the port of Kozmino, which had formally relied on a rail link.
By completing the 4,200 km (2,600 miles) line, Russia has created a powerful leverage for oil flows switches from East to West and visa versa, sending a warning signal to the European Union, which is heavily dependant on energy supplies from its former Cold War adversary.
Transneft has said Japan bought almost a third of ESPO exports this year followed by China with 24 percent and the United States with 22 percent.
President Vladimir Putin has urged oil and gas companies to increase their share in lucrative Asian energy markets. He was expected to formally open the pipeline in the early hours of Tuesday.
"This gives us an opportunity to efficiently work on the fastest-growing market in the world, on the Asia Pacific market," Putin said last week.
The project has been in the Russian limelight since its start, and opposition activist Alexei Navalny has accused Transneft of a $4 billion embezzlement connected to the construction of the pipeline.
Transneft denied the allegations.
Analysts say that Europe's fear of less Russian oil is justified, although exporting companies will decide themselves on eastern or western routes on the basis of profitability.
"Of course, there is a risk of oil flows cuts to Europe. And ESPO blend sells with a premium to Dubai, it speaks in favour of the Eastern route," Alexander Kornilov, a senior analyst with Alfa bank, said, citing the Asian market benchmark grade.
A first-quarter loading schedule has showed that Russia would cut Europe-bound oil supplies with the biggest fall, of 20 percent, expected in its Baltic port of Ust-Luga.
Russia launched the first stage of the ESPO link to Skovorodino at the Chinese border in 2009, and in January 2011 started pipeline deliveries at 300,000 barrels per day to China.
CHALLENGE TO FILL IT
Russia is the world's largest oil producer, at around 10.5 million barrels of oil per day, trumping Saudi Arabia while the kingdom holds back some output to prop up crude prices. But most of Russia's 50,000-km oil pipeline network is concentrated in West Siberia and runs toward Europe.
Moscow has been steadily diversifying its oil exports by shifting away from the Druzhba pipeline, built in the 1960s to supply the Soviet Union's Eastern European allies.
It built the Ust-Luga oil terminal this year on the Baltic and has drastically reduced flows via Druzhba, forcing some East European refineries to seek other options.
But with the ESPO pipeline in place analysts have questioned Russian ability to stick to its commitment of keeping steady supplies to both east and west.
In 2013, Russia will deliver some 18 million tonnes (360,000 bpd) via the ESPO-2 pipeline to Kozmino and ship up to 4 million tonnes there by rail. Long-term, it looks to increase that to 1 million bpd.
"It would be quite a challenge for Russia to fill the pipeline. And some of the East Siberian fields have not been performing as expected," Julius Walker, energy markets strategist with UBS in New York, said.
The Vankor oilfield, controlled by Russia's top crude producer Rosneft, has been the main contributor of oil to the pipeline. Vankor's production is expected to increase to 500,000 barrels per day next year.
Russia has also offered tax relief for some East Siberian fields, including scrapping exports duty - the largest single tax item for oil companies.
According to VTB Capital projections, East Siberia fields will produce 45 million tonnes (900,000 barrels per day) by 2020, up from 15 million tonnes this year.
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