21st century Sino- Russian energy cooperation

Posted in Europe , China , United States , Russia | 18-May-06 | Author: Ioannis Michaletos

Ioannis Michaletos is WSN Editor South East Europe.

A.1 The current energy market situation and Russian perspectives.

The Strategic gravitation of the Russian oil and gas exports for that country, can be shown at first glance from the number of Russian agencies that deal with them (National security Council, Ministry of Foreign affair, Ministry of Defense, Ministry of energy& industry), as well as from the statistics of the World Bank1 that note that almost 25% of Russia’s GNP comes from the state income generated by oil and gas sales. Other estimations by the International Energy Agency of the OECD2 further increase to 40% the aforementioned.

The direct economic implications of the growing Russian oil market is the rapid decrease in the country’s foreign dept from around 90% of its GNP in 1998 to around 36% in 20053 and in parallel the reserves increased from 12 billion USD to 180 billion USD by the beginning of 2005. Moreover as far as the European states are concerned, already from 2003 40% of the total gas imports were met by Russia as well as 25% of Europe’s crude oil imports. If someone is to exclude UK and the Netherlands that are self sufficient in oil, then Italy, France and Germany are much more exposed to Russian dependency and the same can be said for the states of Eastern Europe that heavily rely on Russia to provide gas for the especially long winter nights.

Russia seems to form nowadays a long- term strategy that might in a generation from now construct the largest energy empire the world has witnessed. Despite its superiority in the European market, Moscow’s attention is clearly Eastern forward and more specifically in the untapped and expansionist Chinese market. One has to comprehend that China, the Eurasia antipode of Western Europe, has 3 times the total population of EU’s 25 member states and high economic growth. Furthermore by combining the supply of both Europe and China, Russia will ultimately became the focal political terrain of Eurasia, and will severely handicap any USA attempt of further expanding its influence into Central Asia for instance. Lastly in case of a future major Russian- European crisis the former don’t have any alternative market to export their gas and oil products, therefore they are not yet in the position to make any sort of advancements into Europe, since they are in constant need of the European market so as to continue their major exports and growth.

A.2 The Western Siberian pipeline.

The statement by Alexei Miller , the President of the all mighty Gazprom corporation, on March 21st 2006, was that the first strategic agreement had been implemented for the exportation of natural gas to China. He also added that this is a hallmark of historical proportions that reverses in a sense the Russian- Chinese antagonism since the early 60’s. The Gazprom- CNPC(China National Oil Corporation) agreement, predicts the yearly exportation of some 40 billion cubic meters of natural gas to China from the Western Siberian enacting in 2011.The pipeline4 to be constructed has a total length of 3,000 km and it is estimated to cost over 10 billion USD. Until now there are no specific information on how the total cost is going to be burdened by the interested parties as also other technicalities, the main fact is that it is a major deal that clearly responds to the Chinese needs for energy and the Russian need for expanding its export base, both for economic and geopolitical reasons.

A.3 Chinese alternatives to Russian gas imports.

Judging from the following massive investment of the Western Siberian pipeline, one might suppose that China is on urgent need of Russian energy. The situation is of different nature though. In 2005 the Chinese economy fulfilled only 2.6% of its energy needs with natural gas5 and in 2020 the percentage would be about 4%, hardly a decisive factor of energy policy for China. Actually China is very concerned for its coal production with an estimated ¾ of total energy production due to the use of coal. All the above illustrate in a sense the relative easy going position that the Chinese side has in any negotiations with the Russians and the delicate position the latter have. If the Chinese government ever comes in opposite terms with Moscow in the future it will have little to loose, whilst the Russian side would have to suffer a dramatic withhold of its grand Eurasian visions. In any case as long as the American diplomacy is engaged in Central Asia and pursues its interests with ferocity in the Middle East and in any area of the planet of great interest in the energy sector; The Sino-Russian cooperation would seem as a logical counter measure by the respective states. On the other hand recent history has showed that whenever Russia expanded its influence significantly in the Eurasia mass-Eastern ward- there was a Chinese resentment that as an effect dwarfs any other plans by Russia, as it was the case of Sino-Russia antagonism since the mid 60’s.

A.4 Russia: The center of future energy related developments.

The future of energy related developments has as a main element the decisions and estimations that are being developed in Moscow. For the first time since the end of the cold war, Russia has the ability of virtually transforming the structures of the world energy system as it has been in place since 1973. Whichever direction it moves, it will have wider ramifications, be it Russian- Chinese axis (Or renewed antagonism), European division, or even Russian- Arab energy cooperation that will lead to a resurface of the cold war, albeit without the ideological justifications of the one witnessed in the 20th century. For the immediate years to come Moscow would be in the position to shape the future of the 21st world, even though that would not implicate any actual advancement of its own capabilities, on the contrary energy might well prove to be the double- edged knife for Russian leadership which has an extremely difficult task of achieving its targets without compromising its reputation as a reliable source of energy.

© Ioannis Michaletos, 2006

1 World Bank, Russian Economic Report #7, World Bank Russia Country Department: Economic Unit, (Moscow, February 2004), Page 12-15.
2 Energy Information Agency/EIA, Country analysis, Brief: Russia (January 2006), Page 1.
3 The Brookings Institution, C. Gaddy, January 2005
4 “Gazprom agrees to deliver gas to China”, FSU Oil& Gas Monitor, 22/3/2006, Page 9.
5 EIA Country Analysis Brief: China, www.eia.doe.gov/emeu/cabs/china.pdf (January 2006), page 6&11.

Ioannis Michaletos is WSN Editor South East Europe.