Pipeliners

MOSCOW. (RIA Novosti political commentator Peter Lavelle) – Russia may account for less than 1% of APEC trade, but it is the country that will fuel the economic growth of many of its Pacific Rim neighbors. Russia is literally Asia's pipeline to stability and prosperity and what the Kremlin gets in return is not only billions of petro-dollars, but also an enhanced geopolitical position in this important region. Asia is hungry for oil and Russia has petroleum to more than satisfy this appetite. China today imports approximately half its petroleum needs. Consumption rose by 15% last year and is estimated to leap by an additional 9% this year. Russian Railways exported an average of 155,000 barrels of oil each day to China over the first ten months of this year. This is an increase of 31% over the same period last year. The current plan is to raise the volume of exports to an average of 300,000 barrels of oil day in 2006, although for that to happen the railways company will have to substantially improve infrastructure. By 2025, China's imports needs are expected to reach 14.2 million barrels a day, double this year's level and the lion-share will have to be transported other than by rail. Half of Japan's needs are met through imported oil and 87.9% of its oil is from the turbulent Middle East. It is estimated that if Russia exports a million barrels of oil on a daily basis, as Japan is planning for sometime in the future, this will reduce Japan's reliance on the Middle East to 65%. Both China and Japan desperately need Russia petroleum and the only issue that had to be defined is how Russia's crude is exported – though which pipelines and going where. Russia has long been committed to build an oil pipeline to the Far East for export of crude. Two competing pipelines routes were proposed: the first from the Russian city of Taishet to Nakhodka near the Sea of Japan and the second to the Chinese city Daqing. The Taishet-Nakhodka pipeline extends roughly 2,500 miles, from Taishet, around Russia's Lake Baikal, to the port of Nakhodka where a new export facility will have to be built. Russia estimates that the project will cost between $15 and $18 billion, and the pipeline will have a capacity of 1.6 million barrels of a day. The Daqing route is longer and thus more expensive and would appear to favor China over Japan. What is now called the Eastern Pipeline is a compromise. The first phase is to transport 600,000 barrels of oil a day over 2,000 kilometers to a point within 70 kilometers of the Chinese border. Of this amount, 400,000 barrels of oil a day will then be diverted into a direct Chinese link pipe and the remaining 200,000 barrels a day will be transported by rail to the Pacific Coast for shipment to Japan. The second phase of the proposed pipeline, to be come on line in 2010, will see capacity increase to 1.6 million barrels of oil a day and the pipeline extended the remaining 2,000 kilometers to the Pacific Coast – seemingly to favor Japan over China. The compromise route is a result of economic and political considerations. Japan reportedly promised up to $14 billion in funding for the pipeline, as well as $8 billion in investment in the Sakhalin-I and Sakhalin-II oil and gas projects and the promise of major investment in developing untapped oilfields in Russia. The Kremlin's preference for the two-phrased Eastern Pipeline should not be seen as openly favoring Japan over China – what it does suggest is Russia is protecting its self-interests, first and foremost. The compromised pipeline route ensures that Russia is not dependent on a single buyer, as would have been the case with the Daqing option. The pipeline's plans have been repeatedly delayed over the past 18 months, like all of Russia major projects, due to internal government disagreements. However, with the "Yukos affair" fading into the background and the announcement that the Prime Minister Mikhail Fradkov will in future chair all meetings on the project to try to resolve differences, the first phase of the pipeline will be built by the end of 2008 as promised. A number of commentators and experts on APEC have dismissed Russia as a bit player in the one of the world fastest growing economic zones, going to as far as to say the Kremlin does not have a clearly thought-out foreign policy regarding the 21 member organization. Just the opposite is true. Russia and Japan continue to disagree – as both have since 1945 – about the territorial dispute involving four islands off Russia's far-eastern coast. Though this has not been a barrier to establishing a long-term energy relationship. Russia's trade and other economic ties with China have blossomed since the collapse of the Soviet Union. Far from being a bit player in the region, a better characterization would be to describe Russia a key player affecting the economic future of both countries and the Pacific Rim, in general.