Politics at play in China's energy race

PUBLISHED : Friday, 14 April, 2006, 12:00am
UPDATED : Friday, 14 April, 2006, 12:00am

Russia seen using delays in projects to get more concessions


The mainland's wish to secure long-term oil and gas supply from resource-rich neighbour Russia through pipelines may not be realised as fast as it wants due to wider political considerations, according to a Standard & Poor's research report.


During Russian Prime Minister Vladimir Putin's visit to Beijing last month, the two countries signed a memorandum of understanding to build two pipelines to send natural gas from Siberia to the mainland.


Annual sales of 80 billion cubic metres of gas was envisioned by 2011, which will be sufficient to meet the mainland's domestic supply shortfall until 2020.


The credit rating agency cast doubts on Russia's commitment to the projects, saying they lacked route details and cost estimates while only a sketchy timetable was indicated.


Furthermore, Russia only agreed last month to conduct a feasibility study on the construction of a spur line on a proposed oil pipeline from Siberia to the Pacific eastern seaboard, although it had proposed in 1994 to build a pipeline that was slated to be completed last year.


'The president is probably using the delays as a tactic to extract greater trading concessions,' the S&P report said. 'He is keen for China to accept more exports of manufactured goods from Russia, not just commodities.'


Russia's enthusiasm for a pipeline to the mainland faded after oil-hungry Japan proposed to fund the construction of a pipeline to the eastern seaboard and promised greater investment to develop Siberian oil fields than the mainland.


While the mainland is keen to invest in the underdeveloped fields, S&P pointed to the political and operational risks it would face.


'The Russian government aims at increasing its control of the oil and gas industry,' S&P credit analyst Elena Anankina said. 'As an extreme scenario [like privately owned oil firm Yukos], there is a risk of state intervention, which creates a potential credit cliff for all Russian companies.'


Plans for the original Siberia-China oil pipeline between PetroChina and Yukos floundered after Yukos chairman Mikhail Khodorkovsky's arrest on tax evasion allegations and the forced sale of its key subsidiary, Yuganskneftegas.


High oil export taxes could also raise investment risk for mainland oil firms. About 90 per cent of export revenues generated above US$25 a barrel were collected by the government in the form of export duties and natural resource production tax, S&P said.