China, Japan Eyeing Siberian Oil Pipelines

Japan and China, stand as the world`s second and third highest oil consuming nations in the world respectively. The two countries are currently in a pitched battle of final round lobbying over pipelines from the oil-rich fields in Siberia, Russia.

The oil fields in Eastern Siberia have estimated oil deposits of up to 10 billion barrels from which about one million barrels of oil can be pumped per day. The oil pipelines however, have not yet been linked and it is a matter of days whether Daqing, Heilongjiang, China or Nakhodka, Russia which is close to Japan, will be the lucky candidates.

Japanese Foreign Minister Yoriko Kawaguchi flew to Vladivostok, Russia and while staying there Saturday and Sunday had marathon negotiations with Russian Deputy Prime Minister Viktor Khristenko for 11 hours. Japan had already announced that, if the pipelines are to be linked to Nakhodka, it would lend the complete construction cost of 5 billion dollars. Japan this time suggested offering additional support so that it can soften the lending conditions.

Khristenko said Sunday that “the decision will be made after a comprehensive review on economic, technical and geographical conditions.”

The reason that Russia is not showing much interest in Japan’s proposal is that linking pipelines to ‘Daqing’ would be much shorter and much more economically efficient.

The distance of the smaller proposed pipeline which would stretch from Russia to China would be about 2,400 kilometers, costing $2.5 billion to reach Daqing. However, the distance of the other proposed line which would link oil fields near the Siberian city of Angarsk to the port city of Nakhodka is 3,800 kilometers with an estimated construction cost of about $5 billion. To make a reasonable profit, the pipeline linked to Daqing would have to export 20 million tons while the pipeline linked to Nakhodka would have to export 50 million tons annually.

Russia initially planned to build both pipelines but delayed the project because of financial and technical problems, then later, announced that it would build only one pipeline early this year. The construction of the other pipeline is not yet confirmed. On this, Chinese President Hu Jin-tao met President Putin promising to back the 1.7 billion dollars for constructing the Daqing pipeline and signed a preparatory agreement which makes OAO Ukos, the biggest Russian oil producer, to provide oil to the China National Petroleum Corporation for 25 years.

China is rather relaxed as some concrete plans were already being discussed with Russia. Japan however, desperately needs to secure a stable oil supply through the Nakhodka pipeline as the Middle East, where Japan imports 88% of its total oil, is too unstable.

Japan is also emphasizing that Russian Far Eastern States are actively supporting Japan and the Nakhodka pipeline could be used to export oil not only to Japan and Korea but also to North America. In addition, Kawaguchi reminded Russian officials that Japan and Russia are still disputing territory rights of some northern islands and there is speculation that if Japan fails to get the pipeline deal, the territory disputes may resurface.

Ki-Tae Kwon kkt@donga.com