RUSSIA OPTS FOR PACIFIC ROUTE, BUT HELPING CHINA SAVE FACE

The Russian government is expected to make the final decision on the destination of the Siberian oil pipeline as early as the next few days. The pipeline would link the Russian oil fields near Taishet, northwest of Lake Baikal, to either the Chinese city of Daqing or the Russian Pacific port of Nakhodka (the so-called China route vs. the Pacific route). The competition between China and Japan over the direction of the pipeline has been well publicized. The expectation is that the Russian government will announce its intention to build the pipeline all the way to Nakhodka, from where it can export the petroleum to a wide number of markets, rather than being tied to a single Chinese market (Nikkei Shimbun, December 15).

Last May officials from Russia’s state oil-pipeline monopoly, Transneft, revealed that the Pacific route would go through Taishet, Kazachinskoye, Tynda, Skovorodino, and Khabarovsk to Nakhodka, crossing Russia’s Irkutsk, Chita, Amur, Buryat, and Primor regions. Crude would then be shipped to Japan, China, Korea, Indonesia, and Australia (Itar-Tass, May 2). The estimated costs for such a pipeline have swollen to $15 billion, but this figure does not seem to be prohibitive to the Japanese, who have been actively lobbying for the Pacific route, much to the dismay of Chinese officials who were certain as recently as June 2002 that the pipeline would terminate in Daqing. This was when Yukos seemed to have the leading role in the development of the pipeline. Transneft has now taken the leading role, and officials there have not been shy about warning of the dangers of relying on a single Chinese market.

Many in Japan are speculating that the decision to go with the Pacific route has already been made and that the announcement is strictly pro forma (Nikkei Shimbun, December 15). The decision, when it does come, will have the potential to greatly affect — and complicate — Moscow’s relations with China and Japan.

The Russian government indicated as early as March that it favored the Pacific route, primarily for strategic reasons. As it turns out, domestic politics may also have a large deal to do with the ultimate decision, as Yukos is now literally about to have its cake eaten, and Transneft and Gazprom seem to have a firm grip on Far Eastern oil and gas projects. Additionally, as one analyst has pointed out, economic and financial issues have “taken a back seat in project decisions.” President Vladimir Putin and Prime Minister Mikhail Fradkov have stated that the new pipelines will remain state property and that there are no plans to allow private players — foreign or domestic — entry into the transportation of oil or natural gas (Russia Profile, November 29).

The fact that Russia has not made a big deal of the impending announcement is perhaps meant to keep the Chinese from losing face and being offended, should the decision go for the Pacific route as expected. China and Russia are in the middle of a period of tremendous interaction, with a border demarcation agreement having recently been signed and with the high-profile visit by Russian Defense Minister Sergei Ivanov to China earlier this week. During Ivanov’s visit the two sides agreed to conduct the first joint military exercises in decades (China People’s Daily, December 14).

In a nod to addressing China’s energy concerns, some officials from Russia have indicated that eventually a spur will be opened running to Daqing in northeastern China (Nikkei Shimbun, December 15). In a move highlighting China’s desire to access Russian energy sources, the China National Petroleum Corporation (CNPC) is expected to make a bid for the Russian oil company Yuganskneftegaz at a public auction on December 19. A similar bid submitted by CNPC for a part of Slavneft in 2002 failed after an intense lobbying campaign by Russian lawmakers to exclude the Chinese company. CNPC will have to compete with Gazpromneft for the prize (a controlling 74% share of Yuganskneftegaz), but the Chinese have deep pockets and, they are expected to offer up to $20 billion (Kommersant, December 10).

Although an announcement on the pipeline terminus may be expected at any moment, if no decision is made, then it can be assumed that the Russian government is wary of damaging its relations with China at a time when relations with the United States are on shaky ground.