Will Russian Oil Pipeline Lead to China or Japan?

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Last updated at: (Beijing Time) Thursday, February 27, 2003

Will Russian Oil Pipeline Lead to China or Japan?

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As the possible U.S.-led war on Iraq is at daggers drawn, the international market sees a constant going-up in oil prices. Russia, a major exporter of oil, naturally draws high attention from the world by every action taken. However, its government is still vacillating over whether transporting oil to China via Angarsk-Daqing pipeline or to the Pacific coast via Angarsk- Nakhodka pipeline.

Based on recent reports from New Age, a Russian weekly, a third plan combining the aforesaid two routes was proposed by representatives from relevant oil giants, countries and Russian pipeline transport Transneft in a summit convened by Russian Energy Minister Igor Yusufov. Reports also said the new plan had been submitted to the Russian government for discussion. Till next March, the outstanding question where the Russian oil-pipeline is supposed to run will finally come to a settlement.

Russia meticulously calculating pipeline construction

The new plan suggested laying the Angarsk-Chita-Daqing (China) pipeline first and being completed within the fixed time so that the agreement early reached with China won't fall through. As for construction of Angarsk-Nakhodka pipeline, the plan moved it be temporarily put aside. The summit record said, "To construct Angarsk-Nakhodka main oil & gas pipeline with a feeder line leading to Daqing (China) is in the best national interests. It is advantageous to the development of east Siberia and Far East. And it is conducive to the comprehensive tapping for natural resources."

To tap for the rich oil-gas resources is a significant strategy made by the Russian government in order to stimulate the economic development in the Far East and eastern Siberian region. As early as in 2001 summer, a strategic agreement was reached between Russia and China concerning construction of 2,400km pipeline with a cost of US$ 1.7bn. Thus, there should have been no more suspense regarding who will be the purchaser of oil in Far East. Later, the project was reassured by the participation of Russia's No. 2 oil company YUKOS.

But, who could ever expect that, Transneft put forward last April a plan constructing Angarsk-Nakhodka pipeline, and claimed to have been approved by Russian President Vladimir Putin.

Japanese officials also gave signs by various means that Japan would like to take Russia as its regular oil importer so as to change the current situation wherein Japan heavily relies on oil-suppliers in the Persian Bay. Currently, the Persian Bay is the leading exporter of oil to Japan, accounting for 82 percent of the total. Nonetheless, Japan promised it would annually import 50mn tons from Russia in coming years, which constituted a quarter of the total annual imports. As revealed by media, the Japanese Prime Minister Junichiro Koizumi, in his visit to Moscow, once expressed the willingness to participate in the construction of 3,765km-long pipeline, which is estimated to consume US$ 3.8bn to 5.6bn.

However, Russia's current oil production cannot meet the great demand of the East Asia. Some experts and Transneft vice-president Sergey Grigoriev noted many a time that the current oil output in east Siberia was yet to match the capacity of an oil pipeline extending to Nakhodka. In such circumstances, it may not be worth constructing a pipeline with a capacity of 59mn tons in an economic perspective.

Japan aiming at oil deposits in Far East

As a matter of fact, it is definitely not one or two years ago that Russia began to seek for a suitable route for oil-export to Asian countries. Yet, it is not long ago that Russia fixed the focus on China due to the active promotion by Russia's second-largest oil company YUKOS which has long cherished the wishes for entering the Chinese market. Early since 1999, YUKOS has started exporting oil to China, now the annual scale standing at 1.5mn tons by rail. But, the railway transportation encounters inconvenience, small capacity and high transportation cost. Besides, Siberia is one of the oil-gas development regions of the company. So, China means a most satisfactory purchaser of oil.

Nevertheless, Russian people would never pin their hopes on a single man. By laying an oil pipeline running to the Pacific coast, Russia's oil will ever be exported to countries in the Asia-Pacific region, Japan in particular. Surely, such an oil-pipeline will be confronted with fierce competition from the Persian Bay and Indonesia. Moreover, with the designed capacity of 50mn tons, the pipeline will encounter serious consequences once oil demand falls short of the output.

Japan's involvement, in the final analysis, is out of its own needs. Due to a long distance and a high transportation cost, Japan has to pay US$ 1 higher per barrel than European countries and the U.S. when importing oil from the Persian Bay. The recent ups and downs in the Persia also prompted Japan to diversify channels for importing oil, thereby casting off the over-reliance on the Persia for oil supply. In addition, the Japanese government has lately announced that it did not rule out the possibility of importing oil from other countries in special occasions in order to make it an important method for getting out from the domestic economic slump. Now Japan's strategic oil reserve has reached 0.6bn barrels, equivalent to the total oil demand for 172 days.

Political analysts have their opinions as to why Japan has the enthusiasm for oil pipeline construction. They contended that it served a purpose for seizing the initiative on the settlement of the "northern territories" question, which comprise four islands ---- Habomai, Shikotan, Kunashiri, and Etorofu. Although the Russian side didn't make any concession in this respect, the Japanese government has never given up the stance demanding that Russia return Japan's territory. Junichiro Koizumi, a hardliner on territory reclamation, advocates a lump-sum settlement instead of an inch-by-inch approach toward the return of territories as did his predecessor, Mori Yoshiro.

By PD Online Staff Zhu Lizhen

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