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China and Russia to Cooperate on Energy Supply

China and Russia team up on energy and economy.

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China and Russia this week agreed to build an oil pipeline linking Siberia to China's northeastern borders. The pipeline, to be built by Russia's Transneft and China National Petroleum Corp. (CNPC, the parent company of  PetroChina (PTR)), is expected to carry about 15 million tons of oil per year (290,000 barrels per day). The construction cost is estimated at $800 million. In return for this strategic long-term energy supply agreement, China is in talks with Russia to provide $20 billion to $25 billion in loans to help Russian corporations through the current credit crisis, according to various media reports.

This is a major step that energy-hungry China has taken to secure long-term oil supply. Due to political reasons and geological constraints, China has yet to tap into the rich reserve of its northern neighbor; currently, Russia is not among the top three crude oil exporters to China. Because the Chinese and Russian economies are complementary in many ways, we will likely see a broader range of cooperations after some initial success.

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Dan Su does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.