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Russia plays China energy card

Vladimir Radyuhin

The Kremlin is sending a strong signal to both Europe and Japan that they will have to compete with China.



STRATEGIC DIVERSIFICATION: China's President Hu Jintao and Russian President Vladimir Putin in Beijing on Wednesday. — Photo: AP

RUSSIA HAS made a new move to assert itself as a global energy broker and make other countries play by its rules. On a visit to China this week, President Vladimir Putin pledged to build two natural gas pipelines to China, as well as jointly develop Russian offshore gas fields. The two proposed gas pipelines would deliver 60 billion to 80 billion cubic metres of Russian gas to China a year, Mr. Putin said in Beijing. He also confirmed Russia's promise to build a diversion to China from a proposed oil pipeline from eastern Siberia to the Pacific coast.

In their joint declaration, Mr. Putin and Chinese President Hu Jintao described the plans as "strategic diversification in the energy sphere." So far, Russian energy exports have been mainly to Europe.

The Kremlin's Chinese projects are sending a strong signal to both Europe and Japan that they will have to compete for Russian energy resources with China. Even though Russian officials said the new pipelines would not interfere with Moscow's other energy export commitments, Europe and Japan have every reason to feel worried.The planned volumes of oil and gas deliveries to China may stretch Russia's available resources to the limit.

Half of the annual gas supplies Mr. Putin has promised China — 30 billion to 40 billion cubic metres — will come from western Siberia, which accounts for the bulk of Russian gas production today. Output in western Siberia's ageing gas fields is expected to fall from about 500 billion cubic metres today to 300 billion cubic metres by 2015. Meanwhile, Europe's demand for Russian gas over the same period is projected to grow from the current 140 billion to at least 200 billion cubic metres. Domestic gas consumption in Russia is also set to grow.

In this situation, Russian promises to China put Moscow in a strong bargaining position vis--vis Europe. Following Russia's gas price war with Ukraine earlier this year, the European Union stepped up pressure on Moscow to open up its gas market to Western companies and let them buy energy resources directly from Central Asia, rather than from Russia. EU calls for diversifying Europe's energy sources away from Russia are seen in Moscow as blackmail.

European Commission President Jose Manuel Barroso met Mr. Putin last week to demand that Russia ratify the Energy Charter Treaty, which would give foreign countries access to Russian pipelines and restrict Moscow's ability to set energy transit fees. The EU is also reluctant to let Gazprom have a bigger presence on European gas distribution markets and to agree to the Russian demand for long-term contracts to guarantee a stable market and prices for Russian oil and gas in Europe. President Putin effectively told Europe from Beijing that Russia has other options, and if the EU, which gets half of its gas imports from Russia, does not accept Moscow's sales terms, Russia can just redirect gas flows to China.

Mr. Putin sent a similar message to Japan when he confirmed plans to build a branch of the east Siberia-Pacific oil pipeline to China. The Pacific pipeline is projected to carry 80 million tonnes of oil a year, out of which China will get 30 million. However, Russia's proven oil reserves in the region cannot support such export volumes, and China may get all available oil for itself.

Tokyo has promised to invest billions of dollars in the Russian Far East if Russia pumps all oil to the Pacific port of Nakhodka — closer to Japan than to China. But it could not secure a firm commitment from Russia. Neither could Beijing, as Mr. Putin baulked at setting a time frame for the side pipeline.

These tactics are part of Mr. Putin's strategy to win possibly bigger benefits from Russia's natural resources in terms of political clout, investment, and technologies. Ahead of the G8 summit in St. Petersburg later this year, Moscow is showing the world's rich energy-consuming nations that the global energy market is no longer a buyer's market but is a seller's paradise.

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