China to get first crack at Russian oil: Putin
By John Helmer
MOSCOW - In his most detailed statement to date, President Vladimir Putin has spelled out Russia's priorities for transporting crude oil to Asian markets in the next decade. In diplomatic but unambiguous language, Putin rejected Japanese proposals, in favor of China.
In a press conference at Gleneagles last week as the new chairman of the G8, Putin identified rail deliveries to China from the new border terminal at Skovorodino as his first priority, with 20 million tons (385,000 barrels per day) the target for delivery, once Transneft, the state pipeline agency, builds the planned new pipeline to Skovorodino.
This terminal is 600 kilometers east of the main border rail junction at Zabakailsk and Manzhouli, where current Russian oil deliveries by rail cross into China. It is still unclear what rail capacity China has, or will build, to carry the oil from Skorovodino. Current maps show Russian and Chinese rail lines moving east-west in parallel on either side of the border. They are not yet connected.
An additional 10 million tons (192,000 bpd), Putin said, will be sent on by rail to the new tanker terminal planned near Nakhodka. Construction will take "around three years", the president noted. The president's remarks rejected wishful thinking from Tokyo that a Japanese government offer to finance a pipeline all the way to Perevoznaya Bay, near Nakhodka port, would tempt the Kremlin over Chinese insistence that deliveries to Beijing take priority. "As the oil in this [first-stage] pipeline increases through the development of new sources and fields in eastern Siberia," Putin said, "we will build a second section of the pipeline that will run right to the Pacific coast. This system will then be pumping 50 million tons [972,000 bpd]..."
This number is a discreet way of rebuffing the Japanese government, whose multi-billion dollar financing proposal for the Nakhodka-first pipeline has assumed a capacity of 80 million tons annually (1.5 million bpd). The pay-back terms may also have required such a large volume, despite the fact that, as Russian industry sources have repeatedly pointed out, the eastern Siberian oilfields are far too underdeveloped to fill the pipeline to that level within the next decade or longer. Niether the Russian government, nor the commercial Russian oil companies, have any intention of diverting crude from western Siberia in order to make up the difference for Japan's benefit.
Thus Putin's remarks ought to be read in Tokyo as marking a colossal failure on the part of Japanese interests who have promoted and lobbied for the Nakhodka plan for years. Like the Indians, whose failure to link billion-dollar investment promises to commitments of Russian crude oil supply have resulted in a comparably spectacular failure, the Japanese ought to be auditing how the money allocated to this task was spent; and blaming themselves for the dead end their tactics have now brought them.
In almost the same breath, Putin had less-than-reassuring words for the other goal in Japan's two-pronged strategy for Russia - a peace treaty resolving the status of the Kurile Islands. "Regarding the territorial issue," Putin said, "I would call it the problem of signing a peace treaty - I think you will agree with me that in order to someday settle this question, we need to work on it together, and in order to work on it, we need to meet, to understand each other and trust each other. In order to trust each other, we need to build up our cooperation. These are the issues we intend [to discuss] during my visit to Japan." In short, no Russian oil and no Russian and will go to Japan for the foreseeable future.
Putin's latest statement on the Russian geopolitics of oil was significant, too, for what he didn't offer Russia's most prominent strategic ally, India. This is despite the fact that the current Indian government, and its parastate oil and petroleum refining companies, ONGC and IOC, have made repeated, highly publicized attempts to secure new oilfield concessions in Russia from the Kremlin, as well as shareholding stakes in Russia's state-controlled energy companies.
None of these efforts has made the headway which China's President Hu Jintao and his oil men achieved on their visit to Moscow early this month. Referring to the two reported undertakings by Rosneft to the Chinese for exploration of a Sakhalin oil deposit, and for supply of gas to China, an Indian source observed: "Indian investment of $2.5 billion [in Sakhalin by ONGC] will bring energy security and prosperity to China. We don't shoot people in India, as the Chinese would have done if a Chinese investment had secured one of [the] world's largest oil and gas reserves for Indians. It would have been considered treachery."
In the Indian case, the source claims, still secret mandates have been granted by the Indians to US investment banks, and at least one French bank, to serve as intermediaries in arranging Russian oil resource acquisitions. The potential for corruption which these arrangements might inspire would be more noteworthy if there had been any reason to suspect that American investment banks can influence the Kremlin's oil and gas decisions. Indian officials express continuing optimism that they will secure oilfield concessions in time. They admit they have so far failed to reach any agreement on transporting to India any oil from the Sakhalin-1 oilfield, in which ONGC is a major investor.
John Helmer is the doyen of the foreign press corps in Russia. He first set up his Moscow bureau in 1989, and specializes in the coverage of Russian business.
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