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Beijing strikes back over Russian
pipeline delay
By John Helmer
MOSCOW - A fresh delay by the Russian government
in plans to start construction of the Russian leg of a
major new crude-oil pipeline to Daqing, in northern
China, has so angered the Beijing government that
Chinese officials have made their feelings known. At the
same time, they have told their Russian counterparts to
forget winning state procurement contracts for Russian
imports until the pipeline project is back on the rails.
Officially, not much has happened to the
project, which is planned to ship 400,000 barrels per
day of crude, primarily from the Yukos oil company, to
China. The China National Petroleum Corp has already
begun construction of the pipeline and associated
infrastructure to the Russian border. But the Russians
have been dithering on the route, cost and financing of
the pipeline between the Angarsk terminal, in southern
Siberia, and the Chinese border.
In April,
Moscow decided to authorize construction of the
pipeline, but added an intention in principle to build a
second oil pipeline to the port of Nakhodka, on the Sea
of Japan. There has been intense Japanese government
lobbying, and multibillion-dollar financial inducements,
for this route. But the Kremlin has been reluctant to
accept the Japanese bid because the financing of up to
US$5 billion would tie the oil shipments to repaying the
Japanese loans.
Opponents of the China route
have argued that it was equally unwise to tie the oil to
a single market destination, albeit one with which
Russia has a strategic friendship treaty.
Another factor in the Russian decision-making is
that it has not wanted to allow Yukos, one of whose
shareholders is currently in a Moscow prison, to control
the China pipeline through monopolizing the financing.
At present, Russian law gives the state strict
control over every ton of exported crude oil and
petroleum products through regulation over access to oil
pipelines, tariff pricing for pipeline and rail
transportation, port control, and customs inspection and
export taxation. Most of Russia's pipeline capacity is
also owned by the state and managed by Transneft, a
state company.
Oil-company sources have been
lobbying hard to have the government allow them to build
and finance new pipelines, because their production is
rising faster than the country's export capacity. At
present, because domestic consumption of crude oil is
static at about 4 million barrels per day (bpd), while
production is rising at about 10 percent per annum, and
is already running at more than 8.1 million bpd, every
new barrel of oil produced must be exported if it is to
be sold profitably. Export capacity at the moment is
only 3.5 million bpd. By the year 2012, government and
company forecasts indicate Russian oil output will be
11.5 million bpd. To export 7 million bpd of that, the
country must therefore double its pipeline and other
export capacity.
One compromise reached early in
the year was to move ahead with the China pipeline; send
the Japan pipeline to a feasibility study; and secure
Chinese government financing for the Russian segment of
the Daqing line to substitute for Yukos money. Trasneft
was then put in charge of the project. Transneft has
told Asia Times Online that the Japan pipeline is
premature because there is not enough oil to pump
through it as well as the China line. If both lines are
built at the same time, Transneft said that the gap
between capacity and oil volume would be even bigger.
In the latest move, the Ministry of Natural
Resources in Moscow signaled that it may block the
planned route for the Daqing pipeline on environmental
grounds. An environmental impact commission, set up by
the ministry in Moscow, has come down against laying the
pipeline through Tunkinsky National Park in eastern
Siberia, as well as along the coast of Lake Baikal.
Seismic risk is also an issue in several planned
sections of the route.
Although the ministry has
yet to issue its official position, an industry source
says the ministry sees "the threat of either Yukos or
Transneft having to design another route, or spend more
on costly environmental technologies. In any case, we
expect a delay in government discussion of the project
in September, and thus in implementation of the
project."
But delay is what the Chinese are
angry about. A Sino-Russian ministerial subcommittee on
energy cooperation was to have started work in Moscow
already, but the Russian minister of energy, Igor
Yusufov, asked for a postponement to allow more time for
studying the pipeline route. This delay will have a
domino effect, because Prime Minister Mikhail Kasyanov
was to visit Beijing this month to sign fresh protocols
on the pipeline project. The lower-level delay will
empty the Kasyanov visit of substance.
Some
industry sources want the government to adopt the
so-called northern route, following the north shore of
Lake Baikal and the tracks of the last of the Soviet
rail projects, the Baikal Amur Railroad. Yet the seismic
risk in that area is even greater than the southern
alternative.
Mikhail Perfilov, a Moscow
oil-industry analyst, told Asia Times Online that the
delay in Moscow is "yet another proof that there is
serious lobbying going on by China and Japan. I don't
think that Russia will offer China to build a pipeline
to the Far East [Japan route] with the prospect of also
building an appendix to China in some distant future."
He believes that environmental concerns are simply the
camouflage for the underlying failure of the Kremlin to
decide what direction the pipeline should take.
"The Russian oil companies are more interested
in building a pipeline to the Far East," Perfilov
believes, "as it provides them greater freedom - they
can pump oil to the seaport and then decide where it
goes. The Chinese oil market is not a market in the
classical sense. The [Chinese] government will define
what the oil costs, and how the price is calculated."
Perfilov and others are predicting that the
Kremlin will take a long time to decide the issue. "At
the moment," he told Asia Times Online, "the Russian
government is in a dead end, as it can't choose where it
wants to build the pipeline to. I think both sides -
China and Japan - will use different methods to persuade
the Russian government to make decision in their favor,
including threats."
Last week, for example, in
announcing that Beijing would buy higher-priced US-made
coal-moving equipment for the state-owned coal company
Shinghua Group, Chinese trade officials told their
Russian counterparts that one of the reasons the lower
Russian bid was rejected was anger at the Kremlin's
dithering on the Daqing project. The lost contract would
have been worth $49 million to OMZ, a major
heavy-machinery builder.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
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