Russia plays pipeline game with China and Japan: Moscow`s wariness of Beijing`s growing regional influence may lead to a diplomatic coup for Tokyo, write Andrew
For a glimpse of the future scramble for energy resources between Asia's
two economic giants, one need look no further than the diplomatic tussle over
Siberian oil.
A year ago, China seemed to have the deal in the bag. Executives at Yukos,
Russia's largest oil group, had agreed that the outlet of a planned new
pipeline eastwards from Angarsk in Siberia would be Daqing, centre of
China's oil refining industry. Twelve months on, it seems almost certain
that the destination will instead be the Pacific port of Nakhodka, facing
Japan.
Tokyo is frantically playing down Moscow's apparent swing in its favour,
insisting that final plans are nowhere near completion. "The Russian
government is far away from making a decision," says Kuninori Matsuda,
director of the Russian division of Japan's Ministry of Foreign Affairs.
Yet things have clearly tipped Japan's way. Tokyo has lobbied
aggressively to boost its bilateral relations with Moscow and has offered
generous financing if the Nakhodka route is chosen. Its appetite for Siberian
oil has grown even keener as a result of instability in the Middle East,
which has intensified its search for alternative oil supplies.
Just as important is the fate of Mikhail Khodorkovsky, former head of Yukos,
now in detention awaiting trial on fraud and tax evasion charges. That
renders Yukos's pledge to Beijing worthless.
Japanese officials suspect their counterparts in China are seething at
Tokyo's bid to steal the project from under their noses. But for Russia,
extending the pipeline to Nakhodka makes geopolitical sense.
The alternative locks it into a relationship with China, whose fast-growing
and populous border regions with Russia make it a potential threat to the
depopulated, undeveloped eastern Siberia. By building a pipeline to the
Pacific, Russia could supply oil not only to Japan but also to other parts of
Asia, including China, as well as to the west coast of America. That would
free it from commercial dependence on one country.
Economically, the Nakhodka route may be less compelling. Stretching some
4,000km, it would be nearly 2.5 times as long as the route to Daqing. The
surging cost of steel pipe means construction estimates, once around Dollars
6bn (Euros 5bn, Pounds 3.4bn) have ballooned to as much as Dollars 12bn,
though Japanese officials warn against taking these figures too seriously.
Japanese supporters of the project are basing their analysis on a total cost
of Dollars 6bn, and concede the project may not be economically viable if the
price goes much higher. Some experts worry that Tokyo's strategic need
for oil diversification has led it to disregard the economics of the project
altogether.
Paul Collison, oil and gas analyst for Brunswick UBS, a Moscow brokerage,
says: "The Nakhodka pipeline is like a classic Soviet-era project that
you would only see in a planned economy. The economics just don't make
sense."
There are also questions over the extent of oil reserves in eastern Siberia,
which remain largely unexplored, let alone over the financial and technical
abilities of Russian state-backed energy groups to exploit them.
If Russia does opt for Nakhodka, it may extend two face-saving options to
China. The first is to build a spur off the main pipe to Daqing, though this
may be ruled out on environmental grounds. The second is substantially
enhanced infrastructure for greater exports of oil by rail, albeit at higher
tariffs.
Undeterred, China is increasing its thrust westwards in search of energy
supplies. In spite of Russian concerns, it has made acquisitions in
Kazakhstan and is discussing a pipeline route connecting the two countries.
Russia is keen to encourage greater Kazakh exports through its network, yet
has so far proved unwilling to make its tariffs more attractive and to
differentiate between the poorer quality Russian and higher quality Kazakh
oil. The former Soviet satellite may seek alternative routes east and south.
The scramble over pipeline routes has not yet spilled over into open
conflict. But neither do events augur particularly well for the regional
co-operation that many say is essential for the smooth accommodation of an
energy-hungry China.
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RUSSIA IN FACTS
