CHINA COULD SHAPE
China apparently could be in a better position than Russia to directly influence future Asian oil and gas development and policies, speakers agreed during a Sept. 22 discussion at the Center for Strategic & International Studies.
The $400 billion natural gas deal the two countries signed in May was significant, they agreed. "Both sides wanted it, but its economics are very hard," said Edward C. Chow, a senior fellow in CSIS's Energy and National Security Program.
"They've been negotiating for 10 years to build a very long pipeline involving eastern fields which will be difficult to develop," Chow said, adding, "The gas price when it reaches China's border won't be attractive."
Shoichi Itoh, a senior analyst at the Institute for Energy Economics in Tokyo, said, "The development of eastern Siberia and the Far East is Russia's Achilles heel. There's no need for consuming countries to compete for the untapped hydrocarbons there."
Itoh said, "A Sino-Russian energy partnership would not be a threat to the West as a whole. But the Russian factor needs to be considered as a part of meeting China's energy needs."
Into China's arms?
Andrew C. Kuchins, the CSIS Russia and Eurasia program's deputy director, said there's been a lot of comment—much of it from the Kremlin—in the last 5-6 months, amid talk of sanctions in the Ukraine crisis's wake, that the US could drive Russia into China's arms. "But that could be overblown," he suggested.
Russia's economic growth has stagnated the last 2 years as China's has risen, Kuchins said. "Even though China's population is aging, Russia faces more challenging demographics," he said, adding that both countries have different strategic priorities. "Russia also wants to make China more dependent on it for energy," he said.
Itoh said China unquestionably will be the key factor in Asia's growing energy demand. "It already represents 20% of the region's total natural gas demand, and its crude oil demand is expected to grow significantly," he noted. But Russia will need to construct the necessary pipelines from its fields into the region, and "It's not certain what impact sanctions would have on this," Itoh said.
Key questions include the size of China's loans to Russia and the extent to which it's trying to claw its way upstream for equity interests in Russia's two major gas fields, Chow says. "We have a hint in Rosneft inviting China to get into one of those fields a couple of weeks ago," he said.
Russia also is very late getting to the Asian energy party, where the focus shifted 10 years ago, because of a series of missteps, Chow said. "China built the pipeline east from Kazakhstan because Russia was so late," he said. "Last week, China also broke ground on a fourth gas pipeline from Turkmenistan."
Most significantly, however, the central Asian nations that formerly were part of the Soviet Union allowed outside equity investments that Russia hasn't up to now, Chow said.
"The idea there's a lot of capital floating around waiting to finance Russian energy projects to offset what sanctions are blocking is a mirage," he said. "I think it's likelier that China, which already has made investment loans in many countries, will offer to modify payments in exchange for being allowed to participate in projects' development."
One thing to watch is China's interest in building energy transmissions to India, Kuchins said. The countries already have a trading relationship, and India is increasingly interested in projects, which could bring more hydrocarbons south, he observed.
Kuchins said growing security concerns also could influence the long-discussed Turkmenistan-Afghanistan-Pakistan-India pipeline. "The Chinese, up to now, have stayed out of the situation because it considers Afghanistan a US matter," he said. "It looks as if that will no longer be the case after the end of this year, so China may need to consider whether it wants to take a role."
Chow said, "There's industry scuttlebutt that Turkmenistan has been put under pressure by China since it signed the pipeline deal with Russia. It wants to secure gas from Turkmenistan's huge Galkynysh gas field so it won't go to India instead. Basically, China can use Russia and Turkmenistan to pressure the other to lower gas prices."
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