According to ESAI's Russian oil analyst Yulia Woodruff, the pull of Japan's hard currency and political battles being waged within the walls of the Kremlin will sway the argument in Japan's favour, despite China consuming more oil annually than Japan.

The situation as it stands now is that China and Russia's Yukos wanted an Angarsk to Daqing pipeline, while Japan and Yukos rival Rosneft want an Angarsk - Nakhodka line. However, with Yukos having troubles - what with its boss in jail and the Russian tax man slapping a huge tax bill on it - and Japan hinting that it will invest around US$7 billion on East Siberian infrastructure development, Woodruff believes the Angarsk to Daqing line is finished.

According to Woodruff, "It will be a long time before the Nakhodka line will be built, and there will be many obstacles, but it is looking like the more likely option than Daqing. Yukos's mounting troubles, particularly the US$3.3 billion taxes bill, have shifted the firms' priorities from expansion to survival. Plus, they indicated readiness to supply their crude to Nakhodka if the pipeline would be there."

"Russia's state-owned oil major Rosneft, which is a rival of Yukos, [also] supports the Nakhodka line. [Plus] the Nakhodka route has geopolitical advantages and would help strengthen competitive positions of the state-favoured energy majors, which recently formed an East Siberian consortium," she added.

Furthermore, Woodruff is convinced that "the likely demise of the Angarsk-Daqing pipeline indicates that, for the Kremlin, near-term increase in export capacity is a lesser priority than strengthening the market position of state-owned and politically close energy companies."

The Angarsk-Daqing line was supposed to have helped Yukos fulfil a 25-year supply agreement that it signed with China National Petroleum Corp in 2003. However, environmental issues and Japan's rival bid for an Angarsk-Nakhodka line has helped to the feasibility of the project under threat.