When Russian President Vladimir Putin visits Beijing
on Tuesday, he’s expected to sign a multibillion-dollar deal with China
to build a natural gas pipeline after more than a decade of negotiations
and over U.S. objections that China is undermining Western sanctions
against Russia stemming from the Ukraine crisis.
It may be the first of many such energy deals in the region
as Putin looks to the East to bypass the sanctions. Already the
sanctions have led some American oil and gas executives to skip an
upcoming economic conference in Russia. The deal between Russia’s state
gas company, Gazprom, and China’s state oil and gas company, CNPC,
allows Russia to diversify its customer base, which is heavily dependent
on sales to Europe.
Aware that it could lose market share in Europe -- within
10 years, North American natural gas could ship to Europe -- Russia has
been looking to Asian and East Asian markets, where demand for energy
imports is rapidly growing.
“Japanese, Indian and Korean companies are increasing their
interest and involvement in Russia’s energy sector,” Kyle Davis, an
energy expert at international law firm Goltsblat BLP, said.
“Strategically it makes sense, whether things are going well with the
West or not.”
In late April, Russia's parliament voted to forgive North
Korea 90 percent of its debt to Russia, which dated back to the Soviet
era when the two nations were allies during the Cold War. Instead, it
voted to invest $1 billion in the world’s most-secretive country for
health care, educational and energy projects. The planned energy project
is a major natural gas pipeline through North Korea.
Russia has planned to build a gas pipeline and accompanying
railroad from its offshore Sakhalin Island fields, north of Japan,
through North Korea to South Korea.
“Obviously the greatest variable in this project is the
North Korean risk, which must be handled effectively,” Chris Faulkner,
CEO of Texas-based Breitling Energy and adviser to the Energy China
Forum’s Asia Shale Gas Committee, said. “North Korea is not trustworthy
enough to entrust with an energy supply line, and inter-Korean relations
are not healthy enough at present to carry out this project.”
ExxonMobil operates one of the Sakhalin fields with a 30
percent stake, partnering with companies from Japan (30 percent stake),
India (20 percent) and two Russian companies (20 percent combined).
Subsidiaries of Gazprom, Netherlands-based Royal Dutch Shell, Japanese
corporate group Mitsui and Japanese auto manufacturer Mitsubishi operate
the other field. The project is expected to supply South Korea with 10
billion cubic meters of gas each year. It's expected to make North Korea
into a sort of Ukraine, and it's expected to make South Korea akin to
Europe with its present dependence on Russian gas.
South Korea relies on imports to meet about 97 percent of its energy needs, making it the world’s second-largest natural gas importer behind Japan.
Russia and India have been negotiating to build a $30
billion oil pipeline, which would be the world's most expensive due to
its proposed route through rugged terrain. The so-called Silk Road
pipeline would link Russia’s Altai Mountain region to the Xinjiang
province of China and northern India. Russia exports 70 percent of its
oil, compared to 30 percent of its gas production, and its oil revenues
are nearly seven times its gas revenues, the U.S. Energy Information
Administration (EIA) said.
India is the third-largest oil importer in the world after
the U.S. and China, as it relies on imports from the Middle East, and
it's projected to become the world’s largest oil importer by 2020,
according to the EIA. China and India’s economies have been among the
world’s fastest-growing for the past two decades, and like China,
India’s energy consumption has more than doubled since 1990.
Unsurprisingly, India is aiming to secure additional energy imports and
to diversify its energy supply.
As the Asian Development Bank pointed out in an October 2013 report,
energy pricing in India is a core hindrance to foreign investment, as
oil prices are government-controlled and do not fully reflect the
procurement prices.
Nonetheless, Russia has not called off the project, which
it began planning around the same time that China and Russia began
discussing a gas pipeline. Indian Prime Minister Manmohan Singh and
Putin issued a joint statement from Moscow on Oct. 21, 2013, that
confirmed that the two nations are collaborating “to study the
possibility of direct ground transportation of hydrocarbons.”
The statement basically reaffirmed a joint commitment made
in 2010. A year earlier, foreign ministers from Russia, India and China
agreed to enhance energy cooperation among the two countries, and at the
end of last year, India’s biggest oil and gas company, Oil and Natural
Gas Corp. (ONGC), confirmed its interest in the pipeline from Russia,
calling it “appropriate.”
Talks about the pipeline construction are expected to
conclude by the middle of this year, with a completion date of
2020-2022, according to the Center for Research on Globalization, a
Montreal-based non-profit.
Still, China remains Russia’s most promising customer, with
oil and gas consumption expected to increase by nearly 90 percent in
2011-2020, while India’s is expected to rise by about 50 percent,
according to The Economist’s Intelligence Unit.
“Until a China pipeline is built, Russia has few export
markets for gas outside of Europe, leaving it vulnerable to sanctions
and competition from U.S. exports of shale gas, and Putin knows this,”
Faulkner said.
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