'Patience' piped in Russia-China oil talks

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Last updated at: (Beijing Time) Saturday, October 04, 2003

'Patience' piped in Russia-China oil talks

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China must be patient when dealing with Russian oil and gas businesses, especially regarding the various twists and turns involved in the proposed Sino-Russian oil pipeline project, suggests a senior industry insider.

"Russia's industry is very young. It is just beginning to develop," Ged Davis, former vice-president of Royal/Dutch Shell, told China Daily last week.

He made the comments during an exclusive interview on the sidelines of the Asian Banker Summit, held in Malaysia.

Davis recently retired from the oil conglomerate. It will take time for Sino-Russian relations to mature, Davis said.

China is one of the world's largest oil consumers, while Russia is one of the world's largest oil producers.

"As a consumer, you always look to diversify suppliers; and as a supplier, you always look to diversify customers," he said.

Davis was commenting on the various twists and turns that have hampered the would-be largest bilateral trade deal between the two countries: A 2,400-kilometre trunk line expected to pipe 700 million tons of Russian crude in eastern Siberia to Northeast China over 25 years.

Although the countries signed the framework agreement on the US$150-billion project in March, the Russian

Ministry of Natural Resources indicated earlier this month it might block the planned route for the Angarsk-Daqing pipeline due to environmental reasons.

The current obstacles might be, at least in part, the result of hard lobbying by Japan for a rival pipeline bypassing China and stretching to Russia's Far East port of Nakhodka, experts suggest.

China has been searching for years for ways to reduce its dependence on the turbulent Middle East for oil. Russia could help satisfy China's growing energy needs.

Russia, meanwhile, has been looking for overseas cash to revive its battered economy after the political turmoil in the early 1990s, which left the country's economy reeling.

Sino-Russian energy co-operation could be a win-win situation, experts suggest.

International politics, especially when it involves oil, can be a sophisticated game - always more so than envisaged.

Japan's pipeline proposal received warm support from some Russian politicians. Some speculate the Japanese plan could be approved, as it would help Japan, and it would create a favourable environment for resolving the Russia-Japan territorial row over four islands.

Zhang Guobao, vice-director of the National Development and Reform Commission, confirmed on Saturday the pipeline to China will proceed on schedule.

But he added market concerns cannot be erased right away.

"Chinese officials should understand the fact negotiations are difficult does not mean negotiations are impossible," Davis said.

China's oil companies, he added, should do more planning to ensure they have numerous options for obtaining oil supplies to feed the country's fast developing economy.

"It's a very important issue (for China) to learn and to respect how the market works," he said.

"Life is not easy, and that's particularly true in the oil industry, as it's always involved with difficult geopolitical issues.

"No government wants to feel at risk. It is not only difficult to do business with Russia, but it's difficult to do business anywhere."

China has been diligently trying to diversify its oil imports to safeguard its energy security, as the country's economy has been maintaining strong growth.

China must not overlook the demand side, Davis said. "The key to solving the energy issue comes back to demand. Tough policies on the demand side will help. "That will also greatly contribute to the environmental protection."

China should also pay special attention to the use of vehicles, especially as the nation's auto industry is seeing favourable growth, Davis added.

In terms of Shell's 100-year engagement with China, Davis said, co-operation is never easy.

"Corporate co-operation is like a marriage. Things can go well, and things can go bad," he said.

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