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Breakthroughs unlikely in Sino-Russian pipeline talks
2004-01-20
China Business Weekly
Major breakthroughs are unlikely in the Sino-Russian pipeline talks in the new year, even though both governments have vowed to advance bilateral energy co-operation, experts suggest.
The outlook this year is very bleak for the negotiations -- now at an impasse -- involving both the crude and gas pipelines, as there are few signs that an accord on the gigantic energy projects will be reached any time soon.
"Moscow is very reluctant to move on this matter. And I believe they will not send any signal until after the presidential election in March,'' said Keun-Wook Paik, a London-based specialist on Sino-Russian energy relations with the Royal Institute of International Studies.
Experts suggest uncertainties will continue to shroud the pipeline projects even after the election, as major hurdles in the negotiations cannot be removed in the near future.
"Actually, there is already little doubt that Vladimir Putin will be re-elected Russian president in March,'' Tian Chunsheng, professor with the Chinese Academy of Social Sciences, told China Business Weekly.
A source close to the project told China Business Weekly that even for the gas pipeline, which is widely expected to proceed much more smoothly than the crude one, China and Russia are having a hard time setting prices.
OIL: Setting prices a thorny issue
"The gas price is already pitched very high at the border between Russia and China. So, when the gas reaches South Korea, the price will be less competitive compared with the liquefied natural gas (LNG) imported by boats,'' said the source.
The price range is just one of the touchy problems.
Proposals for the huge gas pipeline have been debated for almost a decade.
The 4,800-kilometre trunk line is designed to supply China's northeastern provinces and the Bohai Bay areas, as well as South Korea, with Siberian gas from the Kovykta field.
The trunk line is to go from China to South Korea via a sub-sea route.
The gas pipeline has been considered economically viable, as the huge markets in China and South Korea have proven stable demand.
"Even the pipeline's feasibility study has been approved by three governments, but obstacles cannot be easily tackled,'' said the source.
There are even more thorny issues associated with the crude pipeline.
The 2,400-kilometre pipeline to transport Siberian crude to China has been studied for years.
Although the US$2.5-billion project might not be destined to be just a pipe dream, the pipeline, which would stretch from Angarsk, near Lake Baikal in eastern Siberia, to Daqing, in China, has been hampered by thorny issues, which have included environmental worries.
Even though oil deals worth up to US$150 billion were signed last May between State leaders to ship up to 700 million tons of the Siberian oil to China between 2005 to 2030, the crude pipeline plan is still winding through twists and turns.
Russia's richest tycoon, Mikhail Khodorkovsky, who was the founding shareholder and chief executive of Yukos, Russia's largest oil and gas firm, was arrested at the end of last October.
Khodorkovsky's arrest has been widely perceived as another major setback to the pipeline, as Yukos has been the Russian side's initiator in the crude pipeline.
As the Sino-Russian pipeline is also being threatened by a competing route to the Pacific coast, proposed by Japan, experts said the pipeline debate is far more than an issue of economics.
The debate, they suggest, has caught the attention of State leaders, who take energy issues into full consideration when fleshing out foreign policies and economic strategies.
"Japan was serious about protecting its position. Please, do not underestimate Japan's commitment to this crude oil pipeline,'' Paik told China Business Weekly.
Japan is keen to buy more Russian oil, and has said it can offer Russia billions of dollars to build the alternative link.
Paik said the Russian Government cannot offer US$13.5 billion for its frontier oil and gas field development, so the money from Japan will help Russia implement the long waited Energy 2020 plan.
"Moscow will be desperate to find a solution that will satisfy both China and Japan's demands,'' Paik said.
"I think they will opt out of the northern line, and will allocate more crude oil from western Siberia for Asia ... to take care of both options.
"In this case, the Angarsk-Daqing route will be forgotten.''
China since 1993 has been a net oil importer. A huge amount of those imports are from the turbulent Middle East.
China's strengthening economy has emerged as the largest force driving the world's growing demand for oil, and the trend is expected to continue.
Last year, China's oil imports increased 31 per cent, and they reached record levels, indicate customs' figures.
"We think the country's oil consumption will continue to pick up. It will be driven by robust economic growth,'' K. F. Yan, a Beijing-based analyst with the Cambridge Energy Research Institute, told China Business Weekly.
"Blackouts could occur again this year if the weather is dry in the summer.''
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