Japan has come a step nearer breaking its dependence on Middle East crude, after agreeing to explore the building of a $5bn pipeline to bring it Russian oil.

Tokyo and Moscow are to "co-operate in setting up" a 2,500-mile pipeline which would deliver crude from the Siberian oil fields to Russia's Pacific coast.

The demand for new routes is higher than ever Valery Nesterov Troika Dialog

The deal was agreed as part of an "action plan" signed by Japanese Prime Minister Junichiro Koizumi and Russian President Vladimir Putin at talks in Moscow.

The construction of the pipeline would bring oil to within a few hundred miles of Japan, easing long-running strategic concerns over energy supplies.

Call for crude

While Japan has the world's second biggest economy, the country lacks its own oil fields, and is especially reliant on the Middle East for crude shipments.

Middle East states supply Japan with more than 80% of its oil supplies.

For Russia, the pipeline would promote efforts to exploit its vast mineral wealth, presenting the opportunity to ship oil not just to Japan, but other Asian states and the US west coast.

The pipeline would run between Angarsk, near Lake Baikal, to the Pacific port of Nakhodka.

Fading star?

But the agreement comes at a tricky time for Transneft, Russia's state pipeline monopoly, which planned the project.

Confidence has waned during recent months in the leadership of Semyon Vainshtock, a former employee at oil firm Lukoil who was appointed Transneft head in 1999.

While the first years saw Transneft transformed into one of Russia's most powerful firms, with two new pipelines built plus a port at Primorsk in the Gulf of Finland, fears have grown that the company has lost momentum.

Some observers question Transneft's ability to meet the capacity demands of oil firms pumping ever-increasing volumes of oil.

"The demand for new routes is higher than ever," said Valery Nesterov of brokerage Troika Dialog.

"If Transneft fails to build them quickly, forcing oil firms to curb output growth, Vainshtock could face problems."

Rival route

Russian oil firm Yukos has planned an alternative to the Angarsk-Nakhodka project, proposing to pipe oil instead to Daqing in northern China.

The Kremlin is likely to give backing to only one of the two projects, the Financial Times reported.

But Yukos shrugged off the threat of Friday's deal.

"We are committed to the China pipeline," a Yukos spokesman told the newspaper.

"This changes nothing in our plans."

The 1,000-mile Yukos pipeline would cost an estimated $1.8bn to build.