Despite crude, Sino-Russian gas flows smoothly

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Last updated at: (Beijing Time) Sunday, December 07, 2003

Despite crude, Sino-Russian gas flows smoothly

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Although a decision on the proposed Sino-Russian crude pipeline plan is still winding its way through various twists and turns, the parallel gas trunkline linking the two countries will proceed much more smoothly, suggest experts.

"The gas pipeline is less politically sensitive, and it is economically logical for Russia," Daniel Yergin, chairman of US-based Cambridge Energy Research Associates, told China Business Weekly.

Yergin is a renowned authority on international politics and energy.

Rusia-Petroleum, led by BP, signed a preliminary deal on November 15 with China National Petroleum Corp (C NPC) and Kogas of the Republic of Korea (ROK) to supply Siberian gas beginning in 2008.

Russia-Petroleum controls the Kovykta gas field in East Siberia.

China has been working with Russia and ROK to draft the blueprint for a huge gas trunkline, to be the largest in Asia, to supply northeastern China, the Bohai Bay region and ROK with gas from the Kovykta field.

The proposed 4,800-kilometre trunkline would go from China to ROK via a subsea route that circumvents the Democratic People's Republic of Korea.

The gas agreement came just half a month after Mikhail Khodorkovsky, Russia's richest tycoon and founding shareholder and chief executive of YUKOS, the Russian side's initiator in the crude pipeline, was arrested.

Khodorkovsky's arrest has become another major setback for the crude pipeline project.

Although a final agreement on the gas pipeline depends on pricing and governments' approval, experts suggest, compared with the crude pipeline, the decision-making process will be fairly smooth.

"The huge markets in China and South Korea ... have stable demand for gas," said Frederic Lasserre, head of commodity research of Societe Generale, one of Europe's largest financial services groups.

The feasibility of the 2,400-kilometre Sino-Russian crude pipeline has been studied for years, and the pipeline, which would stretch from Angarsk, near Lake Baikal in eastern Siberia, to Daqing in Northeast China, has been hampered by environmental worries and the Russian internal competition between the country's oligarchs.

YUKOS and CNPC signed a deal in May to prepare the Angarsk-Daqing pipeline, which was estimated to cost US$150 billion and expected to transport up to 700 million tons of oil between 2005 and 2030.

But preparations did not proceed as scheduled, as Russian officials said they needed time to ensure the pipeline would be environmentally and technically sound.

The project, to pump Siberian oil to China, whose appetite for energy has grown with its booming, export-driven economy, is also threatened by a competing route to the Pacific coast.

The alternate route has been proposed by Japan, which is keen to buy more Russian oil. Japan has said it can offer Moscow billions of dollars to build the alternate link.

"The gas pipeline project will go through rather smoothly, as there are no issues, such as Japan's proposal, involved," Lasserre said.

The pipeline, he added, will be a stand-alone project, and it will be economically viable.

Commenting on the ups and downs in Sino-Russian energy co-operation, Yergin said, "Economic rationality always prevails. Clearly, there are great complementary interests between China and Russia.

"Russia needs a better, more thorough understanding of China as a market, rather than look at it through politics," he added

The huge crude trunkline project, even though it has been approved by both governments, is evidence of the mounting intrigue that accompanies Sino-Russian energy negotiations.

The pipeline debate is much more than an issue of economics, as it has caught the attention of State leaders, who take energy issues into full consideration when weighing foreign policies and economic strategies, experts said.

Oil seems to have become an effective tool in Russia's scheme to enhance its clout on the world's political stage, experts said.

The pipeline issue is unlikely to be solved before Russia's presidential election next March, Yergin suggested.

Sino-Russian energy co-operation is good for global energy security and diversification, Yergin added.

The Sino-Russian energy negotiations are also seen a major step which China, a net importer of oil since 1993 after decades of self-reliance, has taken to secure stable, diverse energy supplies to feed its fast-growing economy, freeing itself from too much dependence on oil from the turbulent Middle East.

The country now accounts for about one-third of the increase in the world's oil usage, International Energy Agency officials said earlier this month.

The agency's figures indicate China's strengthening economy has emerged as the largest force driving the world's growing demand for oil.

That trend is expected to continue next year, when China in all likelihood will replace Japan as the world's second-largest oil consumer.

The United States remains the largest oil consumer.

"China's increasing demand for oil will definitely influence the international oil market," Lasserre told China Business Weekly.

"And OPEC expects a lot from China."

Rising demand for fuel in China makes it easier for OPEC (Organization of Petroleum Exporting Countries), a cartel of oil producers, to maintain their relatively high prices for oil.

"Some OPEC members have been asking for more export quota, which made it difficult for the organization to reduce output to balance the market price," Lasserre said.

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