PetroChina has confirmed it is in talks to build the 30 million tonnes per annum (tpa) Siberia-northeast China crude oil pipeline. China's No 1 oil producer is negotiating with two Russian firms - pipeline operator Transneft and oil firm Yukos - to start construction next year of the pipeline linking oil fields in East Russia with the mainland, according to CLSA. It was estimated to cost US$1.7 billion - about a third of the cost of China's 4,000 km west-to-east pipeline project led by PetroChina, CLSA analyst Erwin Sanft said. Oil throughput was expected to be 20 million tpa in 2005, rising to 30 million tpa in 2010. PetroChina's present crude oil production volume is about 103 million tpa. Analysts expect PetroChina will attempt to buy into the fields supplying the pipeline as part of a strategy to bolster its production capacity. PetroChina is seen to be leveraging on the fast-growing Chinese energy market as a bargaining tool, in much the same way fellow offshore oil producer CNOOC bargains for stakes in offshore gas fields supplying coastal China. Industry newsletter China OGP reported earlier this year that the planned Siberia-northeast China pipeline would stretch 2,400km, and most of the oil was expected to be used by refineries in northeast China. A source said PetroChina's parent, China National Petroleum, would co-ordinate talks with the Russian firms, but PetroChina would be the investor. The two sides are working out details of a joint feasibility study, which will be submitted to Beijing and Moscow for approval once a preliminary agreement is reached. A PetroChina spokesman confirmed the talks, but declined to give further details. PetroChina has an internal minimum return rate of 12 per cent for oil and gas projects it participates in. Mr Sanft estimated the Siberian pipeline would have a 15 per cent rate of return on the China section, if it was allowed to charge a 60 yuan (about HK$56.22) per tonne transportation tariff. On upstream production, he estimated PetroChina would enjoy a 17 per cent rate of return if it could take a 30 per cent stake in the developed oil fields supplying the pipeline for US$2.30 a barrel, and a 50 per cent stake in undeveloped fields that cost US$3 a barrel to develop. HSBC analyst Gordon Kwan said in August that Russian oil exports to China rose more than 45 per cent year on year to almost 35,000 barrels per day in this year's first half, but was less than 3 per cent of China's imports.