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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3523)	10/1/2004 6:13:05 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Don't dismiss China's Daqing oil pipeline By Mark N Katz Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. It appears that Japan has beaten China in the competition over which Siberian oil export pipeline Russia will build. Instead of the shorter route to Daqing in China favored by Beijing, Moscow seems poised to announce its approval for the longer route to Nakhodka on Russia's Pacific coast favored by Tokyo. Several recent conversations I had with knowledgeable Russian and Western sources in Moscow, though, suggest that the Daqing route may yet be the pipeline that gets built. It was the now beleaguered Russian oil company, Yukos, that had originally proposed to sell its Siberian oil to China via a pipeline to Daqing in China's north. Although Japan had offered financial incentives for the Nakhodka route, Russia's then prime minister, Mikhail Kasyanov, indicated in April 2003 that the Daqing pipeline would be built. The following month, Yukos signed an agreement to sell oil to China via this pipeline that it expected to complete in 2005. But as the political feud between Russian President Vladimir Putin and Yukos chief Mikhail Khodorkhovsky escalated, the Daqing pipeline looked less and less likely. On a visit to Beijing in September 2003, Kasyanov informed the Chinese that construction of the Daqing pipeline would be "postponed". Shortly thereafter, Japan offered a beefed-up package for building the Nakhodka route, including US$5 billion for pipeline construction and $2 billion for Siberian oil field development. Since then, press coverage of this issue has indicated that it is the Nakhodka pipeline route that will be built, though Moscow has not yet announced its decision. The Nakhodka route has the advantage of allowing Russia to sell Siberian oil to a variety of customers, while oil shipped via the Daqing route could only be sold to China, leaving Russia dependent on Beijing alone. And while it is estimated that the Nakhodka pipeline will cost two to four times as much as the Daqing line, Japanese financial support will ease this burden considerably. Finally, the Nakhodka pipeline has the advantage of not being the one proposed by Yukos. Moscow could try to please both China and Japan by building both pipelines, or a spur from the Nakhodka route to Daqing, but proven Siberian oil reserves do not yet appear sufficient to supply both markets. Nevertheless, there is reason to believe that Moscow may switch back to favoring the Daqing pipeline once again. During a conversation in Moscow in September, a Yukos official argued that the cancelation by the administration of President Vladimir Putin of the Daqing pipeline was done strictly to punish Yokos chief Khodorkhovsky and Yukos. But once the ownership of Yukos' Siberian assets have been transferred to entities the Kremlin approves of, this motive will disappear. And since the Daqing pipeline is much cheaper than the Nakhodka one, it would be more sensible commercially to build the former. In addition, several Russian and Western sources in Moscow expect that when Moscow and Tokyo are concluding the deal for Japan to fund the construction of the Nakhodka pipeline, Tokyo will not give final approval for the project unless Moscow promises to return the four Kuril Islands that it seized from Japan at the very end of World War II. This is a highly emotional issue for the Japanese; the dispute between Moscow and Tokyo over this issue has prevented the two countries from signing a peace treaty formally ending the state of war between them that has existed since 1945. From the Japanese viewpoint, a Russian promise to return the Kurils (even if it won't be fulfilled any time soon) might appear a small price for Moscow to pay in return for the generous funding Tokyo would provide that would allow Russia to escape dependence on China as the sole customer for Siberian oil. Observers in Moscow, though, were unanimous in emphatically asserting that Putin would never agree to this. Russian public reaction to Moscow even promising to return the Kurils is likely to be so negative that even a president as powerful as Putin could lose his job by relinquishing them. If indeed Tokyo attempts to tie Japanese funding of the Nakhodka route to a Russian promise to return the Kurils, then Moscow is highly likely to approve the export of Siberian oil by the new, Kremlin-approved owners of Yukos' fields there via the less-expensive pipeline to Daqing, China. And with any luck, the construction of the Daqing route will lead to more oil discoveries in Siberia sufficient to fill a pipeline to Nakhodka, as well as to greater oil revenues that will allow Moscow to build it without assistance from Tokyo. Mark N Katz is a professor of government and politics at George Mason University in Fairfax, Virginia. Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. atimes.com