BEIJING (Dow Jones)--The first phase of a pipeline that will bring crude oil from Russia to China has risen to $12 billion due to the weakening U.S. dollar against major currencies, a Russian government official said Wednesday.
Past reports had pegged the cost of the project - a cornerstone of China's strategy to find enough guaranteed supply to meet its rising crude consumption - at $11 billion.
Vladimir Saenko, deputy director of the state energy policy department at the Ministry of Industry and Energy, also said China's policy of capping domestic fuel prices meant there were many risks to the crude export plan.
"We know this market is being subsidized in China, and it means it is significantly different to markets in neighboring countries," Saenko said in response to a question on whether the viability of the pipeline project is in doubt.
Saenko said China National Petroleum Corp. and Russia's state oil giant OAO Rosneft (ROSN.RS) were still unable to agree on prices of crude oil supplies to China due to a low benchmark in their original cooperation agreement.
The price sought by Russia won't be a Urals mix, but will reflect different types of crude, Saenko said.
As part of the oil supply plan, Rosneft and CNPC agreed to form a joint venture company to build a refinery with an annual capacity of 70 million barrels.
Some industry insiders have suggested that Rosneft should build a refinery on the Russian side of the border rather than with CNPC in the Chinese city of Tianjin so that it can export oil products at market prices and avoid the impact of state-set fuel price caps.
The first phase of the pipeline will run to the Russian border town of Skovorodino, where it will connect with a spur line to China.
Costs of the pipeline had risen sharply before, when the initial route was lengthened to run north of Lake Baikal to reduce the potential environmental impact there.
Russia and China are planning a second phase of the pipeline, extending it to the Pacific coast, although it isn't clear whether there is enough oil to fill it or when it will be built.