On New Years day, an oil pipeline linking the Russian city of Skovorodino and the Chinese city of Daqing began commercial shipments. The pipeline is expected to transport 15 million tons of crude oil per year. As reported in Oil and Gas Eurasia, Prosperity Capital's Liam Halligan said, "Now, Russia's oil infrastructure is pointing east--and its gas infrastructure will soon be pointing east, as well as west. Russia can play one side off the other. Russia can command higher prices. Russia can expand its hydrocarbon exports." (Oil and Gas Eurasia No. 11 (November 2010, www.oilandgaseurasia.com/articles/p/130/article/1396).
Other countries are following the Russian lead. In January, Turkmenistan President Gurbanguly Berdymukhamedov said his country was prepared to supply Europe with fuel "as well," citing the launching of the Turkmenistan-Uzbekistan-Kazakhstan-China (TUKC) and Turkmenistan-Iran pipelines (www.oilandgaseurasia.com/news/p/0/news/10272). In addition, in anticipation of a 2012 construction start Kazakhstan has begun developing a technical-economic assessment for the third segment of the TUKC (www.oilandgaseurasia.com/news/p/0/news/10271). China is even considering energy supplies on the Western shore of the Caspian: Li Talun, economic attache at the Chinese embassy in Baku, recently commented on a visit to his country from the State Oil Company of the Azerbaijan Republic (SOCAR). He said that if the necessary infrastructure were in place, China would be interested in buying Azerbaijani gas. "If, for example, Turkmenistan and Azerbaijan conclude an agreement on laying a trans-Caspian gas pipeline, this will make the job easier." (www.today.az/news/business/79081.html).
What does it all mean?
Analysts are divided about the impact of the new route for Russian oil to China. The pipeline has the possibility of doubling the amount of oil Russia ships to China (from about 6% of that country's imports to 12%), but that would mean China would continue to accept the same amount of oil in rail shipments while also receiving oil at full capacity from the pipeline. Steven Blank, of the US ArmyWar College, predicts the amount of oil imports will not double, but that the deliveries will be diverted from expensive rail transport to the less expensive pipeline. (www.rfa.org/english/energy_watch/oil-01102011133217.html)
Alexis Petersen, non-resident fellow at the Atlantic Council, believes that the energy cooperation will not lead to better strategic ties. "For both of them, energy policy is tied hip-to-hip with their foreign policy, and increasingly on their foreign policy, they view each other with immense suspicion. The big story of cooperation between Russia and China has been replaced by the story of their outright competition for resource control among the countries of Eurasia." (www.rfa.org/english/energy_watch/oil-01102011133217.html). Indeed, even though China increased its oil imports by 20% last year, it decreased the amount it was taking from Russia.
By contrast, according to Sergei Luzyanin, the Assistant Director of the Institute for Far Eastern Studies, Russian Academy of Sciences, the pipeline is one of many indicators of improvements in relations between the two countries. "This is not just about oil exports. Last year saw a quality breakthrough in bilateral energy ties...(There are) new projects in the nuclear and electric power industries, liquified gas supplies and gas pipeline construction. Several important contracts for the joint designing of energy machinery were signed along with agreements on huge Chinese investment in the joint development of oil and gas fields in Siberia and far-eastern Russia." (http://english.ruvr.ru/38898871.html).
Whether the new pipelines mean more energy or cheaper energy for China, it is clear that China continues to benefit from the development of Caspian and Central Asian energy resources--while Europe debates what route future pipelines should take. For Russia and China it is a win-win situation, while Europe waits on the sidelines.
Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.
