Natural gas in east Siberia and the Russian far east: A view from the Chinese corner

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Natural gas in east Siberia andthe Russian far east: A viewfrom the Chinese cornerPhilip Andrews‐Speed a

a Centre for Energy, Petroleum and Mineral Law andPolicy , University of DundeePublished online: 13 Sep 2007.

To cite this article: Philip Andrews‐Speed (1998) Natural gas in east Siberia and theRussian far east: A view from the Chinese corner, Cambridge Review of InternationalAffairs, 12:1, 77-95, DOI: 10.1080/09557579808400214

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NATURAL GAS IN EAST SIBERIAAND THE RUSSIAN FAR EAST:

A VIEW FROMTHE CHINESE CORNER

Philip Andrews-SpeedCentre for Energy, Petroleum and Mineral Law and Policy

University of Dundee

Summary: Complementary interests in Russia and China, atboth national and local levels, are likely to ensure that the naturalgas reserves of East Siberia and the Russian Far East aredeveloped in the near future. Which fields are developed first andwhich transport routes are chosen will depend on the interactionof three types of influence: finance, energy security, and politics.Any one of the major field development and pipeline projects willalmost certainly require foreign sources of finance. Given thepresent state of the economies of South Korea and ]apan, fundingfor these projects will probably come mainly from western banksand multilateral agencies, both of which set the parameters thatwill affect the development and choice of projects. China as theconsumer and Russia as the seller will seek security for theirsupply and their market respectively. These requirements willimpact on how the gas transportation infrastructure is developed.Furthermore, the political considerations involve not just therelationships between the nations of Northeast Asia, but thedomestic political forces within the respective regions of Chinaand eastern Russia.

The Russian Federation is estimated to hold 35 percent of theworld's proven reserves of natural gas, some 50 trillion cubicmetres1 (tcm). It is rivalled only by the countries of the MiddleEast which together account for another 33 percent of theproven reserves of gas. Russia is well positioned to act as theprime supplier of gas to both Europe and East Asia. At presentimports from Russia account for about 25 percent of natural gasconsumption in Europe2 and this proportion is set to grow asnew fields are developed and new pipelines built.3 In contrastthe gas fields of East Siberia and the Russian Far East are

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Philip Andrews-Speed

underdeveloped. Meanwhile the emerging economies of EastAsia require ever increasing quantities of imported energy.

The potential match of gas supplies and markets inNortheast Asia has been realised for more than twenty years,but only in the 1990s did the size of the markets grow to levelsat which potential investors were willing to seriously considerthe massive expenditure required. China, Japan and SouthKorea have all shown an active interest in gaining access to thegas resources of East Siberia and the Russian Far East, and alarge number of possible development and transport optionsare under discussion.

This paper examines the issues impinging on thedevelopment of the gas resources of East Siberia and theRussian Far East from the perspective of the People's Republicof China, focusing on those gas fields lying inland from thePacific coast. It first explores the complementary interests thatwould lead to the gas from these fields being deliveredprimarily to the Chinese market. Then the paper examines inturn three fields of influence which are likely to determinewhich gas fields are developed first and which transport routesare chosen: the need for finance; the search for security ofsupply by the Chinese and security of markets by the Russiansuppliers; and a wide range of political interests, domestic andinternational.

The Potential Gas Projects in East Siberia and theRussian Far East, and the Competition

A wide range of projects has been identified which couldprovide natural gas to China and other countries in East Asia.These projects are located in East Siberia, the inland and coastalregions of the Russian Far East, West Siberia, Central Asia andthe Middle East and Southeast Asia.5

The natural gas fields of East Siberia and inland Russian FarEast (RFE), which are the focus of this paper, fall into threegroups from west to east: Krasnoyarsk, Irkutsk and Sakha. Ofthese three regions, Irkutsk has undergone the most detailedevaluation. Here the Kovyktinskoye field is estimated tocontain proven reserves of 0.87 tcm, and possibly in excess of1.2 tcm.6 Rights to this and other fields in the Irkutsk region areheld by the Russian company SIDANCO. British Petroleum

78 Cambridge Review of International Affairs

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Natural Gas in East Siberia and the Russian Far East

intends to earn a 27 percent share of the Kovyktinskoyethrough its 10 percent shareholding in SIDANCO and throughadditional investment in the field.7

To the north-east of Irkutsk lie the potentially massive gasresources of the Sakha Republic (previously known as Yakutia).These lie in two groups. The fields of Batuobinsky district liesome 600-800 km north-east of the Kovyktinskoye field,whereas those in the Vilyuysk district are the same distantfurther to the north-east.Proven reserves of gas in the ^ g o v e r n m e n t o f R u s s i a

Sakha republic are estimated at ° , , , , .t i i. « u .. iu • . * • ! • has ... declared its1.1 tcm, but the potential is , ,thought to be much greater, rapprochement with Chinapossibly in excess of 70 tcm.9 a 'strategic partnership forOf Sakha's identified gas the next century'.accumulations, those in theBatuobinsky district would appear to have the greatest capacityfor rapid development. The rights to these reserves are held bythe region's gas company, Sakhaneftegaz. However EuroGas, aUS company, claims to have the right of first refusal over all oiland gas resources in the Sakha Republic, through its jointventure with Sakhaneftegaz.11

Information on the third region of gas accumulations in EastSiberia, Krasnoyarsk, is less readily available; but the evidencesuggests that it has the potential to rival Irkutsk in size.12

The development of a gas province itself is but a minor partof any large gas project. Transportation and marketdevelopment are frequently more expensive, more time-consuming and more fraught with risk. Thus, at present, nofirm decisions on export routes from East Siberia and the RFEhave been made and many options are under consideration.From the Irkutsk region two distinct routes have beenproposed: a southerly route across Mongolia to Beijing and thenon to the coast; and an easterly route to the far north-east ofChina, which opens up the possibility of a land route to Koreaas well as to Beijing.

For the gas resources of the Sakha Republic a wider range ofoptions exist. One route runs to the south-west joining theIrkutsk pipeline. Eastwards at least four routes have beenproposed in which China, Korea and Japan play respectively


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greater or lesser roles as markets. The gas from Krasnoyarskcould, in principle, be transported via Irkutsk.13

In the context of China as a market, the East Siberian andRFE fields have a number of competitors. China has alreadyindicated an interest in tapping the vast gas reserves ofTurkmenistan, as well as the more modest accumulations ofKazakhstan, both of which would require the construction of a6,000 km pipeline (compared to 2,000-4,000 km for the pipelinesfrom East Siberia). Russia has proposed a pipeline of similarlength from the existing gas fields of West Siberia. Whilst thegas of Sakhalin could, in principal, be supplied to China, it ismore likely to be reserved for the Japanese and Korean markets.

A large number of potential sources of liquefied natural gas(LNG) for East Asia exist, both in Southeast Asia and in theMiddle East.14 From China's perspective these are clearly ofimportance for its coastal provinces. Indeed, a number offoreign companies are currently discussing possible LNGprojects with the Chinese government. However, the physicalsize of China is such that these projects are likely tocomplement rather than compete with any pipeline importsfrom the north or west. Southeast Asian countries havedeveloped a grand design which would link together theirnational gas infrastructure to produce a regional grid whichcould be extended northwards into China.15 The realisation ofthis plan is probably even more remote than the other projectsdescribed, for both economic and political reasons.

Complementary Interests of Russia and China

The proposals for export of gas from East Siberia and the RFE toChina have not come out of the blue. They have emerged aspart of a growing relationship between Russia and China.16

Since 1993 the government of Russia has placed increasingemphasis on Northeast Asia within its foreign policy, and hasdeclared its rapprochement with China a "strategic partnershipfor the next century".17 China, on the other hand, takes a morepragmatic view of the relationship consistent with its distrust ofstrategic alliances. Despite the recognition of the importance ofsocial and economic development, the growing closenessbetween the two countries in the early 1990s appeared to have


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been based principally on arms sales. These provided muchneeded foreign exchange for Russia and access to "forbidden"technology for China.20 The sales were accompanied bymanufacturing licences, training, scientific exchanges and high-level military engagement.21

For twenty years, China was a major exporter of oil. Since1995 it has been a net importer, and its dependence onimported gas and oil is likely to. rise progressively for theforeseeable future.22 In simple terms, China has become apetroleum-poor, overpopulated nation with an economy relianton manufacturing. In contrast Russia is well-endowed withpetroleum, but is under-populated and lacks a substantialmanufacturing industry. Russia's economic development willlikely depend on its petroleum resources.23

Gas will almost certainly play a more important role inRussia's economy than will oil, for two reasons. First, theregional nature of natural gas markets places Russia in a strongposition as a supplier for Europe and East Asia. Second,environmental concerns will persuade many countries to switchfrom coal to gas where economically and politically feasible.China has the third largest reserves of coal in the world, afterthe USA and Russia, and is the largest producer and consumerof coal, with some 75 percent of the country's primary energyconsumption in the form of coal.24 The need for both additionalsources of energy and for clean energy has provided the basisfor China's search for gas imports.25

Shared interests exist at regional as well as local levels. BothEastern Siberia and the RFE, on the one hand, and NortheastChina, on the other, lie at the extremities of their countries, andfar from the loci of economic growth. East Siberia and theRussian Far East have long been undeveloped relative toEuropean Russia. As funding from Moscow has been reducedin recent years, their economies have developed closer linkswith the countries of the Pacific rim.26 Indeed, this eastern partof Russia itself is short of energy as its resources lie untapped inthe ground.27 With a very sparse population, East Siberia andthe Russian Far East, even more than the rest of Russia, will relyon the exploitation of its gas resources for economicdevelopment. In 1996, the Russian government announced along-term development programme for East Siberia and the

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RFE which included provisions to promote foreign investmentand to enhance business co-operation with neighbouringcountries, but funds have been slow to appear.28

Until the 1990s the north-east of China formed the industrialheart of communist China. The concentration of heavy industryin Manchuria was developed first by the Japanese in the 1930s

and was later consolidated byIt is generally the communist government.29

acknowledged that Russia This economic strength wasand China will not fully enhanced by the development, , ,, , , , £ of the giant Daqing oilfield infund the development of t h e 19(f0s A s ^ e

hstiuctuve of

any of the major East China's economy evolved,Siberian or RFE gas projects. these large state industries

were unable to adapt.Increasing financial losses have resulted in falling output,factory closures and redundancies on a massive scale. It isestimated that in Northeast China at least 1.5 million peoplehave lost their jobs in recent years, of which 400,000 were in thecity of Shenyang alone.30

These developments in adjacent regions of Russia and Chinahave led to a rapid increase in transborder economic activity inthe 1990s which has included both trade and joint ventures.31

The most visible effect has been a major flow of Chinese peopleinto the Russian Far East.32

In addition to the complementarities which exist at nationaland regional levels between Russia and China, the interests ofthe corporate players are also relevant. The Chinese national oilcompany, C.N.P.C., has maintained its monopoly over thenational gas infrastructure as well as most of the domestic gasfields, despite the recent reallocation of assets between it andthe predominantly downstream rival, Sinopec. Both itsinternational and domestic ambitions would be served byinvolvement in a major gas import project from East Siberia orthe RFE. Likewise, both SIDANCO and Sakhaneftegaz have anurgent need to raise their levels of production and to earnforeign exchange.


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The Need for Finance

Any one of these major gas export projects is likely to cost atleast US$10 billion for field development and pipelineconstruction.33 Despite their complementary strengths it isgenerally acknowledged that Russia and China will not fullyfund the development of any of the major East Siberian or RFEgas projects. Though Russia's gas infrastructure monopolist,Gazprom, may have the financial resources, it is currentlydirecting its efforts to the development of the Europeanmarkets.34 With foreign exchange reserves exceeding US$140billion,35 China could finance any one or more of these projects,but is likely to want to share the risks with other parties. Giventhe present precarious state of the economies of South Koreaand Japan, much of the outside funding will have to beprovided by either western banks or multilateral agencies. Bothtypes of institution are likely to use similar criteria whenevaluating the competing projects, though they may applythem with different weight.

Potential financiers will examine closely the gas resourcesthemselves, the pipeline routes and the markets. The key issuesconcerning the gas fields will be the quantity of proven reservesand the confidence in these estimates, the levels of productionthat can be achieved, and the time and money required to bringthe fields into production.

The evaluation of gas pipeline projects involves theconsideration of many parameters, financial and legal. Thoughcosts rise in proportion to distance, considerable economies ofscale exist36 and thus the larger the reserves which can be fedinto a single pipeline the greater the financial viability of theproject. In this respect a system of tributary lines which feedinto one trunk line is likely to be more attractive then a numberof parallel lines. Environmental factors will contribute anadditional component of cost. Not only does the permafrost ofEast Siberia and the RFE raise the cost of pipeline construction,but local movements to protect the forests and wildlife willundoubtedly cost time and money for pipeline constructionprojects.37

Any pipeline network requires a detailed and transparentregulatory regime, particularly if it crosses international


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boundaries. Most importantly, gas producers must beguaranteed access to the network on predictable terms. If apipeline crosses a third country on its way to the main market,that third party has the de facto power to hold the pipeline toransom, as has occurred in the Middle East and in easternEurope.38 Any investor will want to see an integrated andreliable regulatory regime down the entire length of thepipeline network, and will seek to minimise the potential forthird countries to disrupt the flow of gas.

The final and crucial stage in the project is the developmentof markets. A gas field with a pipeline is of no value if a marketis lacking, as China's CNPC has learnt to its cost. During themid-1990s CNPC developed the gas fields of Shaanxi Provincein northern China and constructed an 860 km pipeline toBeijing. The first gas was delivered to Beijing in December 1997,but by May 1998 the pipeline was operating at only 10 percentcapacity because insufficient work had been done to developthe market in Beijing.39 No international financial institutionwill accept that kind of risk and therefore an understanding ofthe potential for the development of gas markets is a vital partof any gas project assessment.

A gas market has two main components: volume and price.Expenditure on infrastructure is required to generate a gasmarket, whether to build power stations or chemical plants, orto construct a household gas supply grid. This can be plannedand executed in a timely fashion, provided the localgovernments and industry cooperate. More difficult is the saleprice for the gas. Both citizens and industry in Russia andChina have become accustomed to cheap energy, in all itsforms. Though steps have been taken to raise energy prices,especially in China,40 foreign investors in major gas projects willrequire a guaranteed level of price that provides a suitable rateof return, and a guarantee that the payments will be made.41

In light of these considerations, the project which appears tobe the most attractive is the Kovyktinskoye field in the Irkutskregion with a pipeline to China. The existing level of provenreserves is insufficient to sustain full capacity of 32 billion cubicmetres per year (ban)42 for more than twenty years, but itappears that more reserves will be confirmed nearby.Moreover, the larger accumulations of the Batuobinsky district


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of the Sakha Republic could be linked to the same exportroute,43 as could those of Krasnoyarsk.

The unresolved question is whether to route the pipelinedirectly across Mongolia to Beijing or to direct it eastwards intoNortheast China. The former route has the advantage of havingthe shortest distance to the cities of the North China Plain, suchas Beijing and Tianjin. Further, the terrain in Mongolia is bothless hostile, in the absence of permafrost, and less fragile. Fromthe point of view of markets, however, the second route may bemore attractive. The route eastward passes through a numberof Russian cities before entering China, such as Ulan-Ude andChita, which would allow domestic benefit from the gas. Itcould then go on to the Daqing oil field which itself producessome gas, before turning south to the old industrial heartland ofManchuria. This second route also bypasses Mongolia and thusavoids the risk of a third country disrupting gas supplies. Thekey question here is how soon the economy of this part ofChina will recover from its current slump, and what will be thescale and nature of the demand for energy.

Though the market and transit arguments might appear torule out the trans-Mongolia route, it should be noted thatMongolia may yet provide a significant and reliable market forgas. The country's economy depends on mineral production,mainly copper and molybdenum, but to date all the smeltinghas been carried out in China and Russia. The state companyhas announced that it plans to build a domestic coppersmelter.44 Given the shortage of energy resources in Mongoliaand the potential for growth in the nation's mining sector, asmelting industry could yet prove a more predictable marketfor Siberian gas than Northeast China.

Finally, political stability and regional security are certain tobe important criteria for potential investors in a regional trans-national pipeline network. In this respect, the absence of anestablished and functional multilateral framework for securityin Northeast Asia must be of some concern.45


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Security of Energy Supply and Energy Markets

China and Russia have complementary needs with respect toenergy security. China seeks security of supply whilst Russiaseeks security of markets. For a gas-importing nation security ofsupply has a number of components: sufficient sources ofsupply; diversification of sources of supply; and security oftransport. Likewise, the gas exporter requires adequate marketsize, a range of different markets, and secure means oftransport.

Of these three complementary components, the mostdifficult to attain for both sides is security of transport sincesuch transport is overland by pipeline through a thirdcountry.46 The history of petroleum pipelines shows that anythird country across which a pipeline passes is placed in anextremely powerful position, even if that country is dependenton the pipeline for its petroleum supply. This strength may bediminished to some extent if the transit state is dependent onthe exporting or importing states in some other way, such as forsecurity. The only long-term solution for the exporter andimporter may be to build more than one pipeline followingdistinctly different routes, and with an aggregate capacity inexcess of what is required.47 An example of this is the Yamalpipeline from West Siberia to Europe, which will pass throughBelarus and Poland in parallel to the existing line which crossesthe Ukraine.48

The Chinese government has recognised the need fordiversified sources of supply for natural gas and is consideringthe possibility of pipelines from Turkmenistan and Kazakhstan,as well as LNG imports to the coast. With respect to potentialgas supply from East Siberia and the RFE, it would also be welladvised to take into account the need for security of supply.The direct route from Irkutsk to Beijing has several advantages,as discussed above, and if the fields of the Sakha andKrasnoyarsk region are tied in to the same network, there willbe no shortage of reserves.

This direct route does, however, place the pipeline at themercy of Mongolia, in the same way that the current exportroutes from West Siberia lie at the mercy of the Ukraine. Atpresent, Mongolia appears to be in an extremely weak position:


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land-locked, far from markets, a narrow base for its economy,and enveloped by Russia to the north and China to the south.Regardless of this apparent weakness, China may well choosenot to have its major supply of imported natural gas subject tothe whims of a third nation - in which case a route through thenorth-east of China, either from Irkutsk or directly fromVilyuysk, might appear more attractive for the first importpipeline to be built.

In the eyes of Russia, China is just one part, albeit animportant part, of the East Asian market for gas. Although thegreatest demand for gas in the region is likely to be in China,Russia will not want to become reliant on China as a market lesteconomic or politicalchanges result in a fall in The nations of Northeast Asiademand. Russia would likely face a challenge to ensure thatprefer an export line which ^ e x p l o i t a t i o n o f R u s s i a ' s

provides access to Korea and r . ,Japan. Though the Irkutsk- eastern pet roleum resourcesMongolia-Beijing pipeline is forms the basis for regionalintended to reach the coast co-operation, not conflict.opposite South Korea andsouthern Japan, the various routes which pass throughNortheast China or directly to the Russian coast in the Sakhalinregion may provide a greater range of market options,including LNG export. An additional component in Russia'ssearch for security of markets is the implicit competition withCentral Asia. The completion of the Yamal pipeline to Europe isset to provide a capacity to supply gas in excess of demand49

which will marginalise the Central Asian supplies to Europe.By constructing an eastward-directed pipeline from WestSiberia to connect into the networks of East Siberia and the RFE,Russia could achieve the same stranglehold on the East Asiangas markets.

Political Interests

A full analysis of Northeast Asian political relationships isbeyond the scope of this paper. Rather, the following studyfocuses on those issues which are likely to have a bearing on thedevelopment of natural gas exports from East Siberia and theRussian Far East.


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Russia and China

The complementary interests of Russia and China with respectto the development of Russia's natural gas resources have beendescribed above. It is important to place those interests in awider political context.

Despite their contrasting styles of economic and politicaldevelopment in recent years, Russia and China share certaincharacteristics with respect to domestic and foreign policy. Insimplistic terms, both governments may be characterised asnationalistic, anti-US, aspiring to global influence, lacking trustin the established international institutions, and yet aware thateconomic integration into the world economy is essential foreconomic growth.50 Both are large federal nations in which thecentral government is progressively losing or relinquishingpower to the regions, though faster in Russia than in China.51

Both share a mutual interest in the economic prosperity of theother52 and both fear that instability in Central Asia or in Koreamight threaten the basis for this prosperity.53 Set against theseshared attitudes and interests are mutual fears which have theirroots more in regional than in national concerns.

The Russian Far East is a major confrontation point forRussia and China. The lack of population, the underdevelopednature of the economy and the weakness of the military in theRFE combine to make the region vulnerable to domination byChina.54 This situation is exacerbated by the moves by theregional governments in the RFE and in the Sakha Republictowards greater autonomy.55 Since 1996, regional governors inRussia have achieved office through direct election. In the RFE,in particular, this has resulted in a determination by localgovernments to assert more control over the exploitation ofnatural resources and over both economic and foreign policy.Distrust of China is great and has created opposition to jointinfrastructure projects.56 In March 1998 the Sakha Republiccreated its own Ministry of Fuel and Energy, which reportssolely to the republic and not to the federal government.57 Inthis context it is worth noting that Russia's giant gas transportmonopolist, Gazprom, has less influence in the RFE and theSakha Republic than in the rest of Russia. Thus both Gazprom


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and the Russian government might prefer to develop a gastransport infrastructure based on the Irkutsk fields and leadingacross Mongolia to China. In the absence of an easterly exportline, such a route would lead to Sakha's dependency on theEast Siberia network and thwart its moves toward autonomy.

China, in contrast, has little to fear in the short-term fromRussian military or economic power in the Asia Pacific region.59

From a historical perspective, however, the Chinese may notonly perceive Russia as a long-term threat to the north-east ofChina but may have its own ambitions to "reclaim" territorieslost to Russia.60 Thus, the increasing interdependence betweenNortheast China and the RFE poses both a threat and anopportunity. This is likely to enhance China's desire, discussedabove, not to become too dependent on Russia for gas and toseek other substantial sources of supply.

Northeast Asia

In the context of natural gas supplies from Russia, the mainnational players in Northeast Asia (apart from Russia andChina) are Japan and the two Koreas. Despite the range ofconvergent economic interests, political and security concernshave prevented any sustained regional co-operation, either inthe development of multilateral institutions such as theproposed Great Northeast Asia Economic Circle and NortheastAsian Energy Forum, or in specific projects such as that at themouth of the Tumen River.61 Political relationships tend to bedefined on either a bilateral or a triangular basis, with China inparticular implementing a balance of power strategy.62

Russia, China and Japan are the three great powers inNortheast Asia, with the USA serving as an important, remoteforce.63 The relationships between Japan and both China andRussia contain strong elements of partnership and rivalry.China sees Japan as a potential military threat should Japan bepermitted to strengthen its military;64 yet China does not dare tothreaten Japan, lest it uses this as an excuse to re-arm.65 Japanfears the growing economic and military strength of China, butat the same time requires a stable and prosperous neighbour.66

On the economic front, China needs Japanese capital and


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technology, whilst Japan welcomes access to China's boomingmarkets.

With respect to natural gas, Japan is likely to encourageChina's quest for access to new sources of supply for tworeasons: since gas is a relatively clean fuel, increased use of gasby China will reduce the regional atmospheric pollution; andthe development of new supplies of gas will prevent excessivecompetition for existing supplies. However, in the context ofsecuring access to Russia's gas for itself, Japan is almost certainto want at least one export route from the Sakha Republicwhich does not cross Chinese territory.

The main obstacle to better relations between Russia andJapan is the dispute over the Kurile Islands.67 Of all theterritorial quarrels in Northeast Asia, this would appear to bethe most contentious at present, though the extent to which itinterferes with economic affairs depends heavily on Russiandomestic politics.68 This potential source of conflict has provedto be a major obstacle to substantial Japanese involvement inthe oil and gas resources of the Russian Far East69 despite theproximity of Japan to these resources, and the potentialavailability of capital and markets in Japan. In the long-term, itis in the economic interests of both Russia and Japan toconstruct an export route from the inland gas fields of the RFEto Japan which bypasses China, and which may or may notpass through Korea.

Any land pipeline to South Korea will rely on transit acrossNorth Korea, and this is set to remain a weak link for suchprojects for some years.70 Other alternatives for South Koreainclude a pipeline across the Yellow Sea from China or fromJapan to the south - assuming that the longitudinal networktraversing the whole of Japan is completed, linking southernJapan with the gas fields of Sakhalin and the Russian mainland.The financial and political obstacles faced by these projects,combined with its relatively weak political position in theregion, is likely to mean that South Korea is the last part ofNortheast Asia to be connected to Russian gas supplies.

Despite the clear desirability of a regional, multilateralapproach to the exploitation of Russia's eastern gas resources,71

the evidence today suggests that progress will be made on thebasis of bilateral relationships within the context of a balance of


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power. In the short term, the interests of China and Russia arelikely to prevail. In the longer term, the mutuality of interestsamong the nations of Northeast Asia could lead to acooperative effort to construct a regional, integrated gas supplynetwork. Energy could indeed form the basis of greatereconomic and political interdependence.72 Against suchoptimism should be set a warning note that economicinterdependency in the absence of democracy and internationalinstitutions can lead to instability and conflict rather thanstability and security, especially if aggravated by competitionfor access to natural resources.73

Conclusions

Russia is clearly set to become a major supplier of natural gas toEast Asia, and China will be an important consumer of this gas.A number of different options for gas field development andexport routes exist. Which projects are chosen and the order inwhich they are constructed will depend on the interaction ofthree considerations: the commercial requirements of thefinanciers of the projects; the particular needs of Russia andChina related to security of supply and markets; and regionalpolitical issues in Northeast Asia. China's urgent need for newsources of clean energy should lead to implementation of one orother of these projects within a relatively short time. Financialforces may prevail in the choice of the first project, but the otherfactors discussed will ensure that alternative routes are alsoconstructed.

The nations of Northeast Asia face a challenge to ensure thatthe exploitation of Russia's eastern petroleum resources formsthe basis for regional co-operation, not conflict. The lack of anyregional multilateral institutions of substance needs to beaddressed. However, it is to be commended that Japan andRussia are signatories to the Energy Charter Treaty/4 and thatChina, Mongolia and South Korea have all entered intopreliminary discussions with the Energy Charter Secretariat.


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Notes

1 British Petroleum, BP Statistical Review of World Energy 1997 (London, BritishPetroleum, 1997)

2 British Petroleum, Statistical Review.

3 J.P. Stern, The Russian Gas 'Bubble'. Consequences for European Gas Markets (London,Royal Institute of International Affairs, 1995), pp.66-72.

4 K.W. Paik, Gas and Oil in Northeast Asia. Policies, Projects and Prospects (London, RoyalInstitute of International Affairs, 1995), p.183. K.W. Paik, 'Sino-Russian oil and gasdevelopment co-operation, the reality and implications', The Journal of Energy andDevelopment, 22, 2 (1998), pp. 275-284.

5 Paik, Gas and Oil, pp.183-187. Paik, 'Sino-Russian'. J.V. Mitchell, The New Geopolitics ofEnergy (London, Royal Institute of International Affairs, 1997), p.111. J.T. Jensen,'Natural gas supply for Asian markets', paper presented at Oil and Gas Investments inAsia under Conditions of Oil Price Uncertainties and Financial Crises, Centre for GlobalEnergy Studies, London, 27-28 April 1998.6

Paik, 'Sino-Russian'.

7 'BP, Shell propel Russian gas toward fast trade', World Gas Intelligence, 28 Nov. 1997,pp. 9-11.

8 Paik, 'Sino-Russian'.9'Pursuing a major opportunity in the Sakha Republic', EuroGas website

(http,//www.eugs.com/sakha-opp.html).10

'Diamond in the rough', Russian Petroleum Investor, (May 1998), pp. 52-56.

11 EuroGas, 'A major opportunity'.

12 Paik, Gas and Oil, p.85.

13 Jensen, 'Natural gas'.

14 Jensen, Ibid.15 M. Ogutcu, 'China in world energy. Its energy security and evolving links with other

major regions', presented at Conference on Energy, Development and Security, InstitutFrancais des Relations Internationales, Paris, 16 Dec. 1997.16

R. Menon, 'The strategic convergence between Russia and China', Survival, 39,2(Summer 1997), pp.101-125.

17 D. McDougall, The International Politics of the New Asia Pacific. (London, LynneRienner, 1997), p. 118. C. Harada, 'Russia and North-east Asia', Adelphi Paper No.310(1997), p.16.18

J. Anderson, 'The limits of Sino-Russian strategic partnership', Adelphi Paper No.316(1997), pp.11-18. Harada, 'Russia and North-east Asia', p.46.19

M.B. Yahuda, 'How much has China learnt about interdependence?', in


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D.S.G.Goodman and G.Segal (eds.), China Rising. Nationalism and Interdependence(London, Routledge, 1997), pp. 6-26.20

V. Shlapentokh, 'Russia, China and the Far East, old geopolitics or a new peaceful co-operation?'. Communist and Post-Communist Studies, 28,3 (1995), pp.307-318. K.E. Calder,Asia's Deadly Triangle (London, Nicholas Brealey, 1997), p. 36.

21 P. Ferdinand, 'China and Russia, a strategic partnership?', China Review,(Autumn/Winter 1997), pp. 16-21.

22 R. Priddle, 'China's long-term energy outlook', in China in the 21st Century (Paris,OECD, 1996), pp. 95-127.

23 S. Garnett, 'Russia's illusory ambitions', Foreign Affairs, 76 (March/April 1997), pp.61-76.

24 British Petroleum, Statistical Review.

25 Paik, Gas and Oil, pp. 15-19. R. Priddle, 'China's energy outlook'.26

R.C. Keith, 'The post-Cold War political symmetry of Russo-Chinese bilateralism',International Journal 49,4 (1994), pp. 751-787. Shlapentokh, 'Russia, China'. Ferdinand,'China and Russia'.27 Paik, Gas and Oil, pp.221-235.28

Harada, 'Russia and North-east Asia', p.25.29

M. Scheuller, 'Liaoning, struggle with the burdens of the past', in D.S.G.Goodman(ed.), China's Provinces in Reform. Class, Community and Political Culture (London,Routledge, 1997), pp. 93-121.30

China Economic Review, May 1998, p.4.

31 M.B.Yahuda, 'North China and Russia', in D.S.G.Goodman and G.Segal (eds.), ChinaDeconstructs. Politics, Trade and Regionalism (London, Routledge, 1994), pp. 253-270.Menon, 'Strategic convergence'.

32 Ferdinand, 'China and Russia'.33

'Asian buyers claw for control of East Siberian gas', World Gas Intelligence, 29 Aug1997, pp.3-4. Paik, 'Sino-Russian'.34

Paik, 'Sino-Russian'.

35 Far Eastern Economic Review, 11 June 1998, p.60.

36 Jensen, 'Natural gas'.

37 M. Valencia, 'Energy and insecurity in Asia', Survival, 39,3 (1997), pp. 85-106.38

P. Stevens, 'A history of transit pipelines in the Middle East, lessons for the future',in G.H. Blake, M.A. Pratt, and C.H. Schofield (eds.) Boundaries and Energy, Problems andProspects (London, Kluwer Law International, 1998), in press.39

'Shaanxi natural gas to help beat Beijing pollution', China Daily CBNet, 4 May 199840

C.P. Andrews-Speed, 'Reform of China's energy sector, slow progress to an uncertaingoal', in China's Economy in Transition (London, Macmillan, 1998), in press.


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41 D. Yergin, D.Elkof and J. Edwards, 'Fuelling Asia's recovery', Foreign Affairs, 77(March/April 1998), pp. 34-50. Mitchell, New Geopolitics, p.111.42

Paik, 'Sino-Russian'.43

Russian Petroleum Investor, 'Diamond'.

44 'Mongolian horde', Mining Journal 13 March (1998), p.203.

45 Y. Funabashi, 'Bridging Asia's economics-security gap', Survival 38,4 (Winter 1996-97), pp. 101-116. K.W. Kim, 'Maintaining Asia's current peace', Survival 39,4 (Winter1997-98), pp. 52-64.

46 Stevens, 'Transit pipelines'.

47 Ibid.48

Stern, Russian Gas Bubble, p.17.

49 Stern, Ibid, pp. 73-92.50 T.J. Christensen, 'Chinese realpolitik', Foreign Affairs, 75,5 (1996), pp. 37-52. Garnett,

'Russia's ambitions'. M. Mandelbaum, 'Westernizing Russia and China', Foreign Affairs,76 (May/June 1997), pp. 81-95. Ferdinand, 'China and Russia'.

51 Shlapentokh, 'Russia, China'.

52 Yahuda, 'How much'.

53 Ferdinand, 'China and Russia'.54

Shlapentokh, 'Russia, China'. V.V. Tsepalko, 'The remaking of Eurasia', Foreign Affairs,77 (March/April 1998), pp. 107-126. Calder, Asia's Deadly Triangle, pp.37-40.

55 Ferdinand, 'China and Russia'.

56 Harada, 'Russia and North-east Asia', p.30. Anderson, 'Sino-Russian partnership',p.28. Menon, 'Strategic convergence'.

57 Russian Petroleum Investor, 'Diamond'.58

Paik, 'Sino-Russian'.59

D.Roy, 'China's threat environment', Security Dialogue, 27,4 (1996), pp.437-448.60

Yahuda, North China. A.S. Whiting, 'The PLA and China's threat perceptions', TheChina Quarterly, 146 (1996), pp. 596-615.

61 Yahuda, North China. Paik, Gas and Oil, pp.261-274. R.A. Cossa and J. Khanna, 'EastAsia, economic interdependence and regional security', International Affairs, 73,2 (1997),pp. 219-234.62

G. Segal, 'How insecure is Pacific Asia?', International Affairs, 73,2 (1997), pp. 235-249.

63 Paik, Gas and Oil, pp. 20-71.64

Whiting, 'The PLA'. Christensen, 'Chinese realpolitik'.65

McDougall, International Politics, pp. 95-105.


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66 MacDougall, International Politics, pp. 95-105. Cossa and Khanna, 'East Asia. L.T. Lee,'East Asian assessment of China's security policy', International Affairs, 73, 2 (1997), pp.251-262.

67 Harada, 'Russia and North-east Asia', p.58.

68 McDougall, International Politics, pp.123-133.

69 Paik, Gas and Oil, pp. 20-3070

Ibid pp.194-205.

71 Ibid, pp.261-274. Mitchell, New Geopolitics, pp.122-123.72 R.B. Zoellick, 'Economics and security in the changing Asia-Pacific', Survival 39,4

(Winter 1997-98), pp. 29-51.

73 Segal, 'How insecure'. Cossa and Khanna, 'East Asia'. Zoellick, 'Economics andsecurity'.

74 For a brief analysis of the Treaty see C.P. Andrews-Speed and T.W. Waelde, 'Will theEnergy Charter Treaty help international energy investors?', Transnational Corporations5,3 (1996), pp. 31-59.


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Documents

Natural gas in east Siberia and the Russian far east: A view from the Chinese corner