Pipeline promises

PUBLISHED : Friday, 29 June, 2007, 12:00am
UPDATED : Friday, 29 June, 2007, 12:00am

Russia has by far the world's biggest proven reserves of natural gas. Much of this 'clean' energy is close to Asia, particularly China, where demand is rising fast for carbon fuels that are less polluting than coal and oil. Yet, until recently, none of this gas went to Asia and the Pacific. Instead, for more than 30 years, Russia - and before it the Soviet Union - concentrated on pumping huge quantities of gas through pipelines to Europe, which depends on Russia for more than a quarter of its supply.

This imbalance between Asia and Europe now seems set to change. But where will most of the Russian energy go? Moscow officials say that China is the biggest potential market.

Last Friday, the Russian state-controlled gas monopoly, Gazprom, said it would take over a giant Siberian gas field, belonging to BP and local private-sector investors, for a knockdown price of between US$700 million and US$900 million. The field, at Kovykta in eastern Siberia, is estimated to contain about 2 trillion cubic metres of gas, and could start supplying China through a pipeline that would be built in the next three years. This would be one of two Russian pipelines, the first carrying 30 billion cubic metres of gas each year to western China and the second, 38 billion cubic metres to eastern China.

If this amount of gas starts flowing in the next decade, it would still be less than half the gas Russia sold to Europe in 2005. Can Russia deliver on its promise to be a reliable long-term and large-scale gas supplier to Asia as well as Europe?

Gazprom's gas production has not been rising fast enough in recent years to meet future domestic and foreign demand. Some of its major fields, particularly those in western Siberia that supply Europe, are ageing and in decline.

Along the way, as Gazprom and its oil equivalent, Rosneft, have muscled their way back to the commanding heights of Russia's energy economy, multinational petroleum giants with substantial assets in the country have been bruised. Will the foreign firms continue to put their money, technology and know-how into development of Russian energy resources?

China's state-owned petroleum companies are also being asked to invest in Russia on terms they may not be entirely happy with. Gazprom is insisting that China must pay world market prices for Russian gas. Meanwhile, China is hedging its bets by importing more gas from non-Russian sources.

If Russia and China agree on a long-term deal, it will consolidate their strategic partnership. If they fail, and Russia sends most of its gas and oil to Japan, South Korea and other Asian countries short of energy, a different power equation will emerge in the region.

Michael Richardson is an energy specialist at the Institute of Southeast Asian Studies in Singapore. This is a personal comment