The implications of the energy relations between Russia, China and Japan

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Chapter 5. The implications of the energy relations between Russia, China and Japan

The study of Russian policy towards China and Japan would not be complete without the analysis of energy relations within this triangle and Russian policy in it. While dealing with both countries together Russian policy changes greatly in unpredictable direction and reflects the essense of the country‘s energy diplomacy. This chapter will describe the Russian energy interrelations with Japan in Chine in common projects, how the country chooses and implements its own energy policy with both partners simultaniously and what is the result of such interractions.

Energy relations within the triangle Russia-China-Japan are mainly concerns about oil and gas cooperation, as China and Japan are mostly interested in the import of hydro carbonates from Russia. China‘s imports of energy sources are growing fast, making it the second largest importer globally and the largest importer in Asia. Japan is traditionally depends on the import energy resources and their stable supply in the strategic concern of the second economy in Asia and forth in the world. Both countries would like to see Russia as their important energy recourses supplier.

The construction of the East Siberia – Pacific Ocean pipeline reveals the energy policies, strategies and interests of each country within the triangle in the most comprehensive way, and this is why it should be analyzed in details.

Nowadays, oil pipelines play an important role and the companies involved in the ESPO pipeline being built in Russia‘s Far East understand it very well. The Russian, Chinese, and Japanese governments, as well as the petroleum companies of these countries, all have interests in seeing oil flow across the continent by pipelines, but their interests differ greatly and are related not only to business and economics, but also national interests.

The controversial construction of the ESPO proves that instability and shifted power balances exist over the energy supply in East Asia. Same as for the earlier Baku-Ceyhan oil pipeline construction; geopolitical considerations were much more important then any commercial ones.

There are two significant energy trends determining the competition between China and Japan for Russia's ESPO oil pipeline project. First, the need to find additional energy supplies to satisfy the economic needs and secondly, and, secondly, the need to get more diversified energy recourses in order to secure own energy supplies. And for both China and Japan, Russia is a great supplier and would contribute to the import diversity.

But these trends in energy interests are matched by the dynamic and strong geopolitical

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rivalry, which is defined by a complex and contradictory set of national interests. Thus, within this context, the competition between China and Japan, as well as the Russian role in using this rivalry in own interests, is defined by the energy interests of each country.

China's position is mostly driven by the demands related to its recent economic rise and replacement of Japan as the world's second largest oil importer, with internal demands stipulated by the rapidly increasing consumption and substantial energy inefficiency. Japan's position is also driven by the challenges originated from its own energy insecurity, but also by its weak relations with China and Russia. As for Russia, in the short to medium-term perspective, its position is defined by its favorable role as the world's second largest oil producer, and its overdependence on revenues from the energy recourses export.

The original version of the Siberian pipeline project was much less ambitious than its final route. In 1994, China and Russia started cooperation on feasibility studies to investigate the viability of an oil pipeline from the oil fields in Siberia to China‘s Daqing province to supply oil to the industrial centers within China. The original parties involved to this project were Russian major petroleum company Yukos, the now bankrupted, and Chinese CNPC³¹⁶. The feasibility study was a complex technical undertaking due to the remoteness of the region and the lack of existing resources from which to conduct the study.

Yukos and CNPC examined this issue together for almost a decade. During that time, governments of both countries tried to help and facilitate the deal. In 1999, Prime Ministers Yevgeniy Primakov and Zhu Rongyi signed a framework agreement to investigate the export of oil and gas from Russia‘s Far East³¹⁷, which demonstrated governmental interest and support to the project.

But soon the situation started to change. Because of the consequences of the 9/11 and booming insecurity of the energy supplies from Middle East, countries began to look for new solutions to diversify their energy supplies from unstable Middle East region.

Undoubtedly, this was the main reason for Japan to start to buy Russian oil in 2002. Since this time Japan began to consider Russia as a great alternative source the country‘s import of crude oil. At the same time, due to the internal power struggle in Russia, the relationship between the Kremlin (means government) and Yukos began to worsen which could not to

316 Shue, Stephen, “The Chinese Perspective on the Daqing Pipeline Project”. Retrieved September 25, 2011 from http://www.jamestown.org/publications_details.php?volume_id=395&issue_id=2901&article_id=23475

317 Rutland, Peter, “Pipeline Pirouette in Northeast Asia”. Retrieved September 25, 2010 from http://www.jamestown.org/edm/article.php?article_id=2368263.

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affect the Yukos-CNPC deal. On May 28, 2003 Russian President Vladimir Putin did not attend a signing ceremony between Yukos and CNPC to complete the development of the Angarsk to Daqing pipeline where Yukos and CNPC signed agreements committing CNPC to buy up to 5,13 billion barrels of Russian oil between 2005 and 2030³¹⁸. Beijing understood this signal very clear and the relations between two states over the deal began to deteriorate. Japanese government had been also actively lobbying the Russian government to consider a pipeline not from the original Angarsk to Daqing route, which would supply Siberian oil to China, but from Angarsk to the Pacific port of Nakhodka, where it could supply oil for the entire Asia Pacific region, but mostly to Japan. For Russia the Japanese proposal looked also attractive as the pipeline would fully remain within Russia‘s territory and control. Moreover, Japan also offered to Russia the financing of the large portion of the pipeline together with investing into exploration and social projects at the bordering territories³¹⁹.

Another important factor which affected Russian shift towards Japan was active China‘s policy in NEA. In 1996 American president President Clinton and President Kim Young Sam of South Korea proposed the ''four-party'' talks as a way of overcoming North Korea's unwillingness to negotiate directly with its enemy. Russia and Japan were not included in the proposal and it meant that theirs role in discussing major regional events were not consider as important one, global gegemon USA preferred to rely on rising China.

Moreover, in 2000 China was activelly lobbying the idea of Inter Korean Summit, not inviting again Russia and Japan to join its efforts. It was obvious that China wanted solely act as a ―peace maker‖ in the region and, thus, claim its role as a regional super power.

Under such circumstaneces, Russia and Japan were looking for closer cooperation in order to counter balance the role of rising China in NEA, and energy cooperation would work as a catalyzator for the Russo-Japanese convergence.

After considerations Russian government decided to shift to the Japanese proposal and in January 2004 Russia announced that the pipeline would be constructed from

318 Daly, John C.K., “China and Japan Race for Russian Crude‖. Retrieved September 28, 2011 from http://www.jamestown.org/publications_details.php?volume_id=19&issue_id=2887&art icle_id=23434.

319 Rutland, Peter, “Pipeline Pirouette in Northeast Asia”. Retrieved September 25, 2010 from http://www.jamestown.org/edm/article.php?article_id=2368263.

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Angarsk to Nakhodka³²⁰. The new plan was roughly double in price and the length of the pipeline was extended to 3,700 kilometers, significantly longer than planned.

But, Russian government decided to use the favorable situation in the full extent and in one year the plan took another turn when Russian officials and Transneft executives reported in January 2005 that the Nakhodka route would include a pipeline spur from Skovorodino (located about 48 kilometers from China), which could provide China with Russian oil.

According to Russia's state-owned pipeline monopoly Transneft (which has played an important role in the failure of the Taishet-Nakhodka project), the route would extend roughly 4000 kilometers, from Taishet, through Kazachinskoye, Tynda, Skovorodino, Khabarovsk to the Perevoznaya Bay terminal in the port of Nakhodka1, crossing Russia's Irkutsk, Chita, Amur, Buryat and Primorie regions and the pipeline will have a capacity of 1,6 million barrels per day.