Foreign Correspondence

[Amaunet]

Putin Opts For China-first Oil Plan

In perspective – I will build a pipeline before Putin ever does.

-Am

Jul 12 2005, 04:25 PM
QUOTE
MOSCOW — In his most detailed statement to date, President Vladimir Putin has spelled out Russia's priorities for transporting crude oil to Asian markets in the next decade. In diplomatic but unambiguous language, Putin rejected Japanese proposals, in favour of China, ignoring Indian proposals completely.

In a press conference at Gleneagles on Saturday as the new chairman of the G8, Putin identified rail deliveries to China from the new border terminal at Skovorodino as his first priority, with 20 million tonnes (385,000 barrels per day) the target for delivery, once Transneft, the state pipeline agency, builds the planned new pipeline to Skovorodino.

This terminal is 600 kilometres east of the main border rail junction at Zabakailsk and Manzhouli, where current Russian oil deliveries by rail cross into China. It is still unclear what rail capacity China has, or will build, to carry the oil from Skorovodino. Current maps show Russian and Chinese rail lines moving east-west in parallel on either side of the border. They are not yet connected.

An additional 10 million tonnes (192,000 bd), Putin said, will be sent on by rail to the new tanker terminal planned near Nakhodka. Construction will take "around three years", the President noted.

The president's remarks rejected wishful thinking from Tokyo that a Japanese Government offer to finance a pipeline all the way to Perevoznaya Bay, near Nakhodka port, would tempt the Kremlin over Chinese insistence that deliveries to Beijing take priority. "As the oil in this [first-stage] pipeline increases through the development of new sources and fields in Eastern Siberia," Putin said, "we will build a second section of the pipeline that will run right to the Pacific coast. This system will then be pumping 50 million tonnes [972,000 bd]..."

This number is a discreet way of rebuffing the Japanese government, whose multi-billion dollar financing proposal for the Nakhodka-first pipeline has assumed a capacity of 80 million tonnes annually ( 1.5 million bd). The pay-back terms may also have required such a large volume, despite the fact that, as Russian industry sources have repeatedly pointed out, the eastern Siberian oilfields are far too under-developed to fill the pipeline to that level within the next decade or longer. Neither the Russian government, nor the commercial Russian oil companies, have any intention of diverting crude from western Siberia in order to make up the difference, for Japan's benefit.

Thus, Putin's remarks ought to be read in Tokyo as marking a colossal failure on the part of the Japanese interests, who have promoted and lobbied for the Nakhodka plan for years. Like the Indians, whose failure to link billiond-dollar investment promises to commitments of Russian crude oil supply have failed in comparably spectacular fashion, the Japanese ought to be auditing how the money allocated to this task was spent; and blaming themselves for the dead-end to which their tactics have now brought them.

In almost the same breath, Putin had less than reassuring words for the other goal in Japan's two-pronged strategy for Russia -- a peace treaty resolving the status of the Kurile Islands. "Regarding the territorial issue," Putin said, "I would call it the problem of signing a peace treaty - I think you will agree with me that in order to someday settle this question, we need to work on it together, and in order to work on it, we need to meet, to understand each other and trust each other. In order to trust each other, we need to build up our cooperation. These are the issues we intend discussing during my visit to Japan." In short, no Russian oil, no Russian land, for the foreseeable future. If there are Japanese officials who believe otherwise, they might consider taking early retirement.

Putin's latest statement on the Russian geopolitics of oil was significant, too, for what he didn't offer Russia's most prominent strategic ally, India. This is despite the fact that the current Indian government, and its parastate oil and petroleum refining companies, ONGC and IOC, have made repeated, highly publicized attempts to secure new oilfield concessions in Russia from the Kremlin, as well as shareholding stakes in Russia's state-controlled energy companies.

None of these efforts has made the headway which China's president Hu Jintao, and his oil men, achieved in Moscow on their visit to Moscow early this month. Referring to the two reported undertakings by Rosneft to the Chinese for exploration of a Sakhalin oil deposit, and for supply of gas to China, an Indian source observes: "Indian investment of $2.5 billion [in Sakhalin by ONGC] will bring energy security and prosperity to China. We don't shoot people in India, as the Chinese would have done if a Chinese investment had secured one of world's largest oil and gas reserves for Indians. It would have been considered treachery."

In the Indian case, the source claims, still secret mandates have been granted by the Indians to US investment banks, and at least one French bank, to serve as intermediaries in arranging Russian oil resource acquisitions. The potential for corruption, which these arrangements might inspire, would be more noteworthy, if there had been any reason to suspect that American investment banks can influence the Kremlin's oil and gas decisions.

Indian officials express continuing optimism that they will secure oilfield concessions in time. They admit they have so far failed to reach any agreement on transporting to India any oil from the Sakhalin-1 oilfield, in which ONGC is a major investor.


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