New energy for reintegration

Russia’s energy exports to East Asia may drive the Eurasian country’s reintegration with the region and enhance the security and stability of an area marked by long-standing rivalries and growing energy demands, observers said at a recent conference in Washington.

“Energy will drive Russia’s role of influence and integration in northeast Asia” after Russia disengaged from the region for more than a decade after the Soviet Union’s demise, said John Fetter, president of FSI Energy, a Pennsylvania-based organization specializing in energy and environmental projects. Mr. Fetter made his remarks at a July 22-23 conference on Russia-Asia relations at the Woodrow Wilson International Center for Scholars.

In possession of the world’s largest natural-gas reserves and eighth-largest oil reserves amidst substantially growing Asian energy demand, Russia could use its energy trade to improve bilateral relations with Asian countries, some scholars say. The building of pipelines crossing through Siberia and Sakhalin Island to China, Japan and the Korean peninsula would bring the region closer together, they say.

The industrialized societies of Japan, South Korea and Taiwan lack natural energy resources and heavily depend on foreign oil imports. China, largely self-sufficient in providing for its energy needs until 1993, when it became a net oil importer, replaced Japan last year as the second-largest petroleum consumer, trailing only the United States.

China’s demand for oil will continue to surge as the country puts millions of new cars on the road, said James Dorian, a Washington-based international energy economist. Mr. Dorian noted that passenger car sales increased 75 percent in 2003.

Asian oil demand is predicted to outpace that of Western industrialized nations two- to threefold, according to the Energy Information Agency (EIA) of the U.S. Department of Energy.

Most Asian oil imports come from the Middle East, but the looming crisis in Iraq and terrorism have generated fears of a disruption in oil supply.

Diversifying oil sources is a common strategy, and Russia’s energy market is an attractive alternative. Pipeline gas would be cheaper than oil imported from the Middle East and would reduce northeast Asia’s foreign exchange burdens, some scholars say.

Russian President Vladimir Putin, who has made energy trade and developing the Russian Far East’s economy among the main priorities for his second administration, is deciding whether to construct pipelines connecting the Russian city of Angarsk in eastern Siberia to Daqing, China, where there’s an oil pipeline network, and another one to Nakhodka, Japan. Transneft, Russia’s state-owned pipeline monopoly, is said to favor the Angarsk-Nakhodka option.

Natural gas is expected to be sent to Japan through a proposed pipeline, called Sakhalin I. Gas exports are scheduled to begin in 2008. Japanese companies Mitsubishi and Mitsui are partners with Shell in another project, Sakhalin II, to develop Russia’s first liquefied natural gas (LNG) facility.

Russia’s gross domestic product (GDP) grew by 7.3 percent in 2003, with petroleum, petroleum products and natural gas its main exports, according to the EIA, which says it has proven 60 billion barrels of oil reserves.

The Russian Far East, remote and largely economically isolated from the rest of the country, has considerable natural resources.However, much of the Russian Far East’s vast volumes of untapped gas, condensate and oil reserves lack critical infrastructure and require foreign technology and investment to become profitable. The natural gas industry, in particular, is underdeveloped.

For Russia, which hasn’t worked out a comprehensive policy for Asia, geopolitics may trump geoeconomics on energy issues. The Turkey-Russia oil pipeline has taught Russia it’s risky to depend solely on a country to buy its major exports, said Michael Bradshaw, professor of human geography at the University of Leicester in Britain.

Proposed pipelines, such as the Angarsk-Nakhodka option, appeal to Russian leaders because they skirt China and won’t make Russian dependent on China, with which it had turbulent times in its relations, as an outlet for its energy sources, Mr. Bradshaw said.

Russia and its Asian neighbors lack a solid track record of multilateral cooperation, and the relationship is characterized by “competition and conflicts of interest,” Mr. Bradshaw said. Russia likely will opt for bilateral agreements, he said.

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