Publication: Eurasia Daily Monitor Volume: 4 Issue: 54

On March 13, Prime Minister Mikhail Fradkov voiced support for the idea to build a gas pipeline alongside the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline. “I regard it positively,” Fradkov told reporters at a meeting in the Sakha-Yakutiya Republic. He suggested plan has provisions for both the gas pipeline and the development of subsoil resources (Interfax, Itar-Tass, March 13).

Fradkov’s remarks about a parallel gas pipeline made no mention of where the natural gas to be funneled via the ESPO would come from. The only viable source of gas appears to be the giant Kovykta field in Irkutsk region. As TNK-BP appears unable to meet the May deadline to correct license violations at Kovykta, it may well surrender — or lose — its license to Gazprom. The Russian gas monopoly has consistently refused to allow exports of gas from Kovykta to China, but with the Kovykta license under its control, Gazprom could re-think its earlier position and consider funneling gas via the ESPO.

It is also far from certain how the idea of an ESPO gas pipeline could be reconciled with the Altai pipeline project. During President Vladimir Putin’s visit to China in March 2006, he pledged to raise oil and gas exports to China. Specifically, Putin promised to export Russian gas to China via the $10 billion Altai pipeline. Although it was expected to be commissioned in 2011, by March 2007 the project’s economic and environmental feasibility still remained a matter of inconclusive debates.

In the meantime, the economic viability of the ESPO oil pipeline project still remains a matter of debate. During his March 13-14 trip to Yakutiya, Fradkov also voiced concern over the slow development of oil deposits in Eastern Siberia for the needs of the ESPO project. Fradkov ordered the Natural Resources Ministry to submit calculations to the government before July 1, 2007, on the oil volumes required to fill the ESPO pipeline, adding that extra efforts were needed for the purpose. Fradkov urged government agencies to check deposit users regarding whether they have fulfilled their license obligations.

The first stage of the ESPO pipeline, with an annual capacity of 30 million tons (600,000 barrels per day), is due on stream at the end of 2008. It is expected to be filled with crude produced in Western Siberia. However, the decision on whether to commission the 50 million tons/year second stage of the ESPO pipeline still depends on reserves and production in Eastern Siberia.

Government officials have conceded that pumping high volumes of crude in Eastern Siberia remain a distant prospect and would require huge investments. Eastern Siberia and Yakutiya could raise oil production up to 40 million tons a year by 2015, and up to 80 million tons only by 2025, while related expenses are estimated at $102 billion, said Andrei Dementyev, deputy industry and energy minister. The ESPO project would allow Russia to claim 6-6.5% of the Asian crude market, he said (Interfax, March 14).

The pace of developing new deposits remains slow, conceded Natural Resources Minister Yuri Trutnev, who pledged to crack down on those license holders found to be investing less in exploration than they had originally pledged. “The number of substantial violations of license terms should be equal to the number of licenses revoked,” he was quoted as saying in the ministry’s statement. Trutnev said that urgent measures were needed just to bring production in Eastern Siberia above 25 million tons a year (Interfax, March 14).

Meanwhile, Khabarovsk regional governor Viktor Ishayev voiced some measured criticism of the ESPO plans. “We need to mine and process resources in the Far East” to achieve maximum returns, he told journalists in Moscow on March 15. He described construction of a pipeline to sell crude from Tyumen to China as the wrong approach. Ishayev also suggested creating export-oriented industrial zones along the border with China (Interfax, March 15).

In a yet another recognition that Russia’s Far Eastern infrastructure remained underdeveloped, on March 14 Fradkov ordered 70 billion rubles be allocated to build roads, power stations, and other facilities in Yakutiya. However, he warned that the region did not need unscrupulous businessmen aiming to profit from the federal budget spending (Interfax, March 14).

Projects to develop the Far East should be attractive for private businesses of all sizes, Fradkov told a cabinet meeting on March 15. Participants also discussed development of the Kemerovo region in Siberia, and Fradkov backed efforts to restructure the coal sector in Kemerovo (Interfax, March 15).

Kemerovo regional governor Aman Tuleyev told the cabinet meeting that Russia needs to consume more coal as an alternative to natural gas. Kemerovo region could raise its annual coal production up by 40-50 million tons in three years from 174 million tons in 2006, he said. Tuleyev further argued that Kemerovo’s coal output could reach 270 million tons by 2025.

First Deputy Prime Minister Dmitry Medvedev supported Tuleyev’s arguments. China largely relies on coal in terms of its energy needs, Medvedev said (Interfax, March 15). The idea to use more coal to substitute natural gas would allow Russia to limit domestic gas consumption, freeing up more gas for exports.