* Russia to cut oil exports by rail when pipeline starts
* ESPO pipeline expected to start full operations on Jan 1
* Pipeline carries 300,000 bpd, rail about 200,000 bpd
By Jim Bai and Tom Miles
BEIJING, Dec 9 (Reuters) - China's imports of Russian crude oil by railway will fall sharply next year after a new pipeline begins pumping oil across the border, Sergey Tsyplakov, the Russian Trade Representative in China, said on Thursday.
That means two steps forward, one step back for Russia's hopes of boosting its oil exports to China.
The Chinese branch of the East Siberia-Pacific Ocean (ESPO) pipeline is expected to start operating on Jan. 1, supplying 300,000 barrels per day (bpd).
Many oil market participants expected it would effectively double Russian sales to China, which totalled 12.8 million tonnes (308,000 bpd) in the first 10 months of 2010.
But losing the rail route at the same time means China's oil imports from Russia, which also include some shipments via Kazakhstan and by ship, may rise by only 100,000 bpd next year.
"Railway transportation was very expensive and had little economic benefit. To carry 10 million tonnes a year of crude oil was a big burden for the railway," Tsyplakov said.
"It's good to have the railway to supply other products when the crude oil will be supplied via the pipeline."
Russian state oil firm Rosneft has been sending oil to China by rail ever since it bought the biggest unit of defunct oil giant Yukos six years ago. The purchase was facilitated by a $6 billion loan from China, which effectively prepaid $17 per barrel for 48.4 million tonnes of oil.
That contract ran out this year, and Rosneft decided not to extend it, citing the low selling price.
But a new deal was struck during the depths of the financial crisis in February 2009, when Rosneft and pipeline monopoly Transneft borrowed $25 billion from China Development Bank in return for 15 million tonnes a year for 20 years.
The pipeline was originally intended to carry twice as much oil to China, but Tsyplakov said any increase would depend on Russia's capacity to produce more from its East Siberian oilfields.
"Russia has introduced some policies, such as lowering export taxes and fees to encourage developing the oilfields in East Siberia, which should help to create the conditions for further exports," he told reporters at a briefing in Beijing.
He said China-Russia trade was up 43 percent to $45.1 billion in the first 10 months of this year, and he expected it would hit $55-57 billion in the full year, recovering to 2008 levels.
Asked about the possibility that the oil would be settled in roubles, following a currency agreement between the two countries, he said: "In principle Russia can ask for payment for energy in roubles, but whether it is necessary to do that is debatable." (Reporting by Jim Bai and Tom Miles; Editing by David Chance and Ken Wills)