WORLD / Wall Street Journal Exclusive
Energy at top of agenda for Putin visit
(THE WALL STREET JOURNAL)
Updated: 2006-03-20 11:26
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Russian President Vladimir Putin is scheduled to visit Beijing tomorrow
for talks in which energy will be high on the agenda. China intends to
push its energy-rich neighbor to deliver on past promises to supply it
with more power.
During Mr. Putin's two-day stay, his hosts are likely to convey growing
frustration that Russia hasn't provided as much energy assistance as
China has wanted. Beijing is expected to push the Russian leader to
commit to specific plans for building oil and gas pipelines to China.
"China isn't satisfied with the development of cooperation in energy,"
Zhang Guobao, vice chairman of the National Development and Reform
Commission told Russia's Interfax news agency early this month, in a rare
display of open concern. "The practical level of cooperation in my view
is still very insignificant."
The lack of progress is disappointing to China, which has scoured the
globe for energy to supply its fast-growing economy, even though Russia,
the world's largest gas producer and No. 2 in oil, is next door. At
present, Russia supplies no gas to China and roughly 5% of China's oil
imports.
A legacy of Cold War tensions between the two giants, there are no major
pipelines and limited rail links across the shared border. Last year,
Russia shipped 7.7 million metric tons of crude by rail to China. It had
promised 10 million tons.
This week's discussions are expected to center on reviving talks to build
a spur that would carry oil directly to China from a $7 billion pipeline
Russia plans to build across east Siberia to the Pacific, as well as a
stalled gas pipeline.
For years, China has pressured Russia to build more links and expand
shipments. But Kremlin politics, Russia's legendary bureaucracy and
Moscow's persistent suspicions of its more-dynamic neighbor have led to
delays and broken promises. Beijing's efforts to buy up Russian energy
assets, meanwhile, have run into roadblocks from the Kremlin.
China is particularly eager to foster closer energy ties with Russia
because routing resources by land could be more secure than sea shipping.
Currently, some four-fifths of China's oil imports pass through the
Straits of Malacca in Southeast Asia, which Chinese planners fear could
be easily blocked.
Officials on both sides say a deal on a spur for the oil pipeline to the
Pacific could be signed during Mr. Putin's visit, although Russia's
record on following up pledges has Beijing wary.
"Take the question of building the oil pipeline. ... One Russian official
says Russia has made the decision, another says it hasn't," Mr. Zhang
told Interfax, in comments that were confirmed by his office in Beijing
last week. "The whole process is unsatisfactory."
Japan, meanwhile, has been pressuring the Kremlin to ensure that any
pipeline runs to the Pacific -- not directly to China -- thus preventing
Beijing from monopolizing Russian supplies. Despite Russian assurances
that there will be enough oil for both customers, Tokyo officials are
concerned that China's surging demand could mean that no Russian crude
flows to the Pacific Ocean, and on to Japan.
Within Russia, meanwhile, there is infighting over who will carry the
oil. The national railroad was planning to spend more than $1 billion to
expand lines to carry crude to China. It now wants the government to
guarantee that the planned pipeline won't divert those flows, even though
rail shipments are more costly.
Russian officials insist they want to see more oil flow to Asia,
especially China, and hope the planned pipeline will stimulate growth
across the desolate Siberian region. When completed in 2008, the line is
slated to carry 600,000 barrels of crude a day. Moscow has said it will
expand daily capacity to 1.6 million barrels, although officials have
given no indication of when that might happen.
Han Xiaoping, senior vice president of Beijing-based energy consultancy
Beijing Falcon Pioneer Technology Co., said the negotiations may still
take time. "Russia isn't market driven. But maybe this [Putin] visit is
slowly the turning point."
Moscow is only beginning talks on links to supply gas to China. An
official from the state gas company OAO Gazprom said it will sign an
agreement in Beijing this week spelling out planned volumes and the
pricing formulas for future gas shipment. But officials indicate key
issues including where the multibillion-dollar pipelines will be run
remain unresolved.
"In Russia, the contract signing is only the beginning of the
negotiation," said Stephen O'Sullivan, an analyst at United Financial
Group, a Moscow brokerage. "The Chinese are increasingly strident in
their view that 'We're not just going to wait for you.' "
While Beijing would clearly prefer the security and low cost of pipeline
gas from Russia, the Chinese government could also build more terminals
for liquefied natural gas from elsewhere in Asia as an alternative.
Beijing had been working with BP PLC on a deal to bring in gas from the
huge Kovykta field, which lies relatively close to the Mongolian border
near Lake Baikal. But Gazprom blocked that project, saying it wants to
determine where pipelines are built.
In an interview with Chinese media Friday, Russian First Deputy Premier
Dmitry Medvedev, who also serves as chairman of Gazprom's board of
directors, seemed to provide a ray of hope for Kovykta, citing it as an
example of what he called "significant potential for cooperation in the
gas sphere."
Russian officials have expressed concern that building a gas pipeline
directly to China would leave them hostage to a single buyer. Analysts
and officials said Gazprom needs to decide quickly on its plans for
fields and pipelines to be able to deliver gas by early in the next
decade.
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