Moscow's Siberian pipeline game

Posted in Russia | 22-Jul-04 | Author: Sergei Blagov| Source: Asia Times

MOSCOW - Russia's expected decision to build a Siberian oil pipeline to the Pacific port of Nakhodka - instead of an alternative route to China - will surely please Tokyo, but threatens to strain Moscow's relations with Beijing.

This month Russian President Vladimir Putin called for expanding Russia's ties with the Asia-Pacific region for the development of Siberia as well as far eastern parts of the country. However, he refrained from a clear commitment on the future of Siberian oil-pipeline projects.

Russia's state oil-pipeline monopoly, Transneft, last week held public hearings on the Taishet-Nakhodka project in Russia's far eastern Primorie region. Transneft officials revealed that the pipeline would go through Taishet, Kazachinskoye, Tynda, Skovorodino and Khabarovsk to Nakhodka, crossing Russia's Irkutsk, Chita, Amur, Buryat and Primorie regions. Crude would be funneled to Japan, China, Korea, Indonesia and Australia, Transneft said.

In March, Russia skipped a previous version of the Japan-backed project, Angarsk-Nakhodka, in favor of the Taishet-Nakhodka oil pipeline. In May, Transneft president Semyon Vainshtok stated that the estimated cost of an oil pipeline from Eastern Siberia to Nakhodka was about US$12 billion. The Taishet-Nakhodka oil pipeline would be some 4,200 kilometers long, about 250km longer than the Angarsk-Nakhodka project.

Tokyo has been lobbying hard for an oil-pipeline route to the Pacific and has promised it would invest in developing untapped oilfields. To back up its lobbying, Japan reportedly promised up to $14 billion to fund 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. Japan has also said it will give Russia 8.4 billion yen ($77.6 million) to fund a feasibility study of the Nakhodka route. (Transneft is to complete a final study by next March.)

But the proposal to build the pipeline from oilfields in Eastern Siberia to the Far East port of Nakhodka is competing with a rival pipeline scheme to China. Beijing favors this alternative pipeline that would bring oil to Daqing in northwestern China. In June 2002, Russian officials pledged to invest $2 billion to fund the construction of the Russia-China oil pipeline, designed to supply 20 million to 30 million tons of oil to China every year. It was to be funded by Transneft and oil major Yukos, as well as the China National United Oil Corp (Chinaoil).

Preliminary plans for the oil pipeline involved two possible routes starting from the Angarsk refinery near Irkutsk, Eastern Siberia, going to either Beijing or Daqing, Manchuria. The other possible route is through Mongolia. Russia had favored the route through Mongolia because it is 170km shorter, while Chinese officials presumably prefer the second route because of lower political risks.

The construction of the Angarsk pipeline was scheduled to begin in 2003 and commissioned by 2005. The pipeline's total length was to be 2,247km, including 1,452km in Russia. Russia's blueprint implied that through 2005-09 the pipeline was due to supply 20 million tons of crude a year from oilfields in the Sakha-Yakutia region, in Eastern and Western Siberia. By 2010 supply was to be raised to 30 million tons per annum. However, Transneft, and then the Russian government, skipped the Angarsk-Daqing project.

Russia had been toying with both options, but this March indicated that it could favor the Japanese-backed project. Japan argues that the Nakhodka route would also be a strategic asset for Russia, allowing it to export to other Asian countries and perhaps the US west coast.

Moscow has been leaning toward Tokyo for some time. Russian Foreign Minister Sergei Lavrov pledged to step up ties with Japan ahead of a visit to Tokyo early next year by Putin, but held out few hopes of substantial progress. On June 25, he told his Japanese counterpart Yoriko Kawaguchi that Moscow "intends to launch intense joint work with Tokyo ahead of President Putin's visit to Tokyo in 2005".

The Russian Nezavisimaya Gazeta daily commented last Wednesday that Russia's acceptance of Japanese money signified a final decision in favor of the Nakhodka pipeline project. The daily warned that the development could complicate relations between Moscow and Beijing, because China had invested in an Angarsk-Daqing pipeline feasibility study. Beijing could view the demise of Angarsk-Daqing as a breach of trust with serious repercussions for bilateral relations, the daily wrote.

For now, Beijing seems to remain diplomatic. Chinese Ambassador to Russia Liu Guchang has said he was pleased with the outcome of his talks with Russian Energy Minister Viktor Khristenko in Moscow on June 30.

"Russia is the country with the largest hydrocarbon [market], while China is the largest and most reliable oil, gas, and oil product market," Liu said. "Khristenko told me that the construction of an oil pipeline to China had been included in the strategy for developing the Russian energy sector until 2020. China appreciates the reasons why Russia has abandoned the southern and northern routes of the pipeline construction from Angarsk eastward around Lake Baikal due to ecological considerations and agrees that the Taishet-Nakhodka route is the most reasonable one," said Liu, adding: "The Russian government could make a final decision this fall and start planning pipeline extension into China."

Before the Russian and Chinese leaders meet in September, a bilateral committee on energy cooperation will hold a meeting to discuss this issue in detail. "The meeting with Minister Khristenko has given me hope that Chinese-Russian energy cooperation will have a reliable and bright future," Liu said.

On the other hand, problems with the China-bound pipeline could be partially explained by Russia's besieged Yukos. While Russia's pipeline monopoly Transneft has backed the plan to build a pipeline to Japan via Nakhodka, Yukos had been long focusing on China. Now Yukos' former head Mikhail Khodorkovsky is ready to surrender his shares to pay off Yukos' huge tax debts, and the fate of Yukos projects remains far from certain. Khodorkovsky's proposal could help stave off asset seizures over a $3.4 billion back-tax bill for 2000.

In April, state-owned Russian Railways Co (RZD) agreed to more than double rail crude-oil exports to 130,200 barrels per day (bpd) (6.46 million tons) this year, up from 60,000 bpd (3 million tons) in 2003. Russia's oil exports to China by rail are expected to increase further to 302,200 bpd by 2006. Putin earlier stated his support for plans of the RZD to boost oil exports to China by rail. The RZD has said it is technically feasible to boost rail shipments to China to 600,000 bpd. However, the RZD had planned to rely on crude supplies from Yukos to export oil to China: and now Yukos has other issues to worry about.

On the other hand, Russia, which sits on a quarter of the world's natural-gas reserves, could try to compensate the possible demise of the Angarsk-Daqing project by a multibillion-dollar pipeline project to export Siberian natural gas to China.

The $4 billion project, expected to carry 20 billion cubic meters of gas annually, envisages the installation of a 3,700km pipeline between the Kovykta natural-gas field, which is 400km north of Irkutsk near Lake Baikal, and China's Pacific coast port of Lianyunggang, via Ulan Bator in Mongolia.

In November 1997, Moscow and Beijing reached an agreement on the gas-pipeline project. In the joint statement signed in Beijing by former presidents Boris Yeltsin and Jiang Zemin, both sides prioritized bilateral cooperation in natural gas and energy. In February 1999, the two nations signed a deal on a feasibility study of a giant gas pipeline linking the Kovykta deposits in the Irkutsk region of Siberia with northeastern China. However, it remains to be seen whether the long-delayed Kovykta-Lianyunggang gas-pipeline project could serve as adequate compensation for the loss of Angarsk-Daqing.