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Russia walks thin line between
Japan and China
By Sergei
Blagov
MOSCOW - The Kremlin's decision to
approve the East Siberia-Pacific oil pipeline and
pump its Siberian crude toward Japan has come as a
blow to China's hopes of securing its own slice of
Russia's hydrocarbon riches. And Moscow's energy
overtures toward Beijing as a consolation prize
are not much by which to set store.
On New
Year's Eve, Russian Prime Minister Mikhail Fradkov
approved the Taishet-Nakhodka oil pipeline
blueprint, the government said in a statement. The
annual capacity of the East Siberia-Pacific
pipeline system would eventually reach 80 million
tons, the statement said. The pipeline will go
from Taishet, through Kazachinskoye, Tynda,
Skovorodino, Khabarovsk to the Perevoznaya Bay
terminal in the port of Nakhodka, crossing
Russia's Irkutsk, Chita, Amur, Buryat and Primorie
regions, according to Russia's state-owned
pipeline monopoly Transneft, which has long backed
the Taishet-Nakhodka project.
In March
2004, Russia opted out of the previous version of
the project - an Angarsk-Nakhodka pipeline - in
favor of the Taishet-Nakhodka blueprint. The
Taishet-Nakhodka oil pipeline will be 4,130
kilometers long, some 250 kilometers longer than
the Angarsk-Nakhodka line.
Russia's
decision to build a Siberian oil pipeline to the
Pacific port of Nakhodka will please Tokyo, but
upset Beijing. Japan backed the Nakhodka route,
while Beijing favored an alternative pipeline that
would have brought the oil to Daqing in northwest
China. Russia has been toying with both options,
but in March 2004 indicated that it could favor
the Japanese-backed project.
Tokyo has
been lobbying for an oil pipeline route to the
Pacific. To back up its lobbying, Japan reportedly
promised up to $14 billion funding of the pipeline
as well as $8 billion in investments in the
Sakhalin-1 and Sakhalin-2 oil and gas projects,
according to Russian media reports. The estimated
cost of the oil pipeline from eastern Siberia to
Nakhodka could reach $11-12 billion. The
Taishet-Nakhodka route is seen as a strategic
asset for Russia, allowing it to funnel crude not
only to Japan but to Korea, Indonesia, Australia
and the US west coast as well.
Russia had
been discussing a China-bound oil pipeline for
nearly a decade. In June 2002, Russian officials
pledged to invest $2 billion to fund the
construction of the 2,247 kilometer pipeline from
the Russian city of Angarsk in the Irkutsk region
to Daqing in northeastern China, which was
scheduled to begin in 2003 and commissioned by
2005. Through 2005-2009, the pipeline was to
supply 20 million tons of crude a year from
oilfields in eastern Siberia. By 2010, the supply
was to be raised to 30 million tons per annum. But
finally, the Russian government opted out of the
project.
In the past, Russian and Chinese
officials have raised the possibility that a
branch of Russia's Pacific pipeline could
eventually be diverted to China. However, the
December 31 announcement mentioned no China-bound
branches of the proposed pipeline. As consolation,
on December 30, Russia said it would offer China
National Petroleum Corporation (CNPC) up to a 20%
stake in a new state-owned entity that would
control Yuganskneftegaz, the main asset of the
collapsing Russian oil company Yukos.
Russia's state-owned Rosneft bought 100%
of Baikal Finance Group, the company that won the
December 19 auction to acquire a 76.79%
controlling stake in Yuganskneftegaz. The Russian
government indicated that Yuganskneftegaz assets
would eventually be transferred from Rosneft to a
new fully state-owned entity. An offer of a
sizable stake in Yuganskneftegaz, a business that
pumps about 1 million barrels of oil a day, could
have sounded impressive. But Russia has refrained
from offering CNPC a blocking, let alone
controlling, stake in Yuganskneftegaz.
The
Chinese state oil company is yet to comment on the
proposed acquisition. However, Yukos has
reiterated its readiness to go ahead with its
legal action. "Whoever would eventually become a
formal owner of Yuganskneftegaz, Yukos would
continue to use all legal means to seek damages
caused by forceful confiscation of this asset,"
said a Yukos spokesman. Yukos earlier indicated
that it would sue to recover more than $20 billion
of damages from all participants of the
Yuganskneftegaz auction. Hence a possible
acquisition of a stake in Yuganskneftegaz could be
a double-edged sword for the CNPC.
In
December, Russian President Vladimir Putin
insisted that the Yuganskneftegaz auction had been
carried out in compliance with Russian law. Putin
also indicated that CNPC could be involved in
operations of some Yuganskneftegaz assets. Moscow
has signed agreements with CNPC reflecting
bilateral "strategic understandings" on the
expansion of energy cooperation, deemed vital to
long-term economic growth in both countries.
In yet another gesture toward Beijing,
Russia has pledged to boost oil exports to China
by rail. Russia's state-owned Russian Railways Co,
or RZD, has promised to more than double rail
crude oil exports to 130,200 barrels/day
(b/d)(6.46 million tons) in 2004, up from 60,000
b/d (3 million tons) in 2003. Russia's oil exports
to China by rail are expected to further increase
to 302,200 b/d (15 million tons) by 2006. The RZD
has said it is technically feasible to boost rail
shipments to China to 600,000 b/d (more than 30
million tons).
However, the planned oil
exports to China could hardly serve as a
substitute for the Angarsk-Daqing pipeline
project. Rail freight is expensive, and while
Yukos was keen to export oil to China by rail,
other Russian oil firms are understood to be
reluctant to replace Yukos as supplier to China
due to high costs and low profit margins.
In the meantime, Russia's Siberian
hydrocarbon riches are set to remain a field of
competition between energy-thirsty East Asian
economies. Russia's position is unique in terms of
oil reserves. Moscow can offer massive acreage in
eastern Siberia, while the country's oil reserves
are still big enough to support booming oil
exports for decades to come. Estimates of Russia's
total proven reserves vary from 50 billion barrels
to more than 100 billion barrels. Although in
terms of reserves, Russia is still way behind
Saudi Arabia's estimated 262 billion barrels,
Russia has large untapped fields in Eastern
Siberia and the Arctic shelf.
Russia
envisages crude output growth up to 441 million
barrels (60 million tons) in Eastern Siberia and
up to 147 million barrels (20 million tons) at
offshore oil fields around Far Eastern Sakhalin
Island by 2020. Russia anticipates that
development of untapped oil reserves in Eastern
Siberia would require some $55 billion of
investments in the next 25 years. The government
claims that these projects could bring more than
$100 billion in profits. According to the
International Energy Agency estimates, Russia will
need over $500 billion of investment in energy
infrastructure by 2020.
Despite the high
costs, investors could expect high profits. In
2003-2020, the Russian oil industry's combined
profits could reach $820 billion, while the
natural gas sector's profits are expected to
amount to $350 billion, according to government
estimates. Although it remains to be seen whether
the anticipated oil price is enough to get the
Eastern Siberian fields and transportation routes
developed, these untapped reserves are set to
remain a potentially important source of crude
supply for Asian and Pacific economies in the
years to come.
Sergei Blagov
covers Russia and post-Soviet states, with special
attention to Asia-related issues. He has
contributed to Asia Times Online since 1996.
Between 1983 and 1997, he was based in Southeast
Asia. In 2001 and 2002, Nova Science Publishers,
NY, published two of his books on Vietnamese
history.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing.) |
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