From Yulia Latynina’s column in the Moscow Times:
On June 17, President Dmitry Medvedev and Chinese President Hu Jintao signed an agreement in which Russia will sell 300 million tons of oil to China over 20 years for $100 billion. That breaks down to $57 per barrel.
In order for Russia to deliver that oil, a new pipeline must be built to China. This is something that Yukos had originally planned to build by the mid-2000s at a cost of $4 billion.
By March 2008, however, the price for the project had risen to $29 billion. At that cost, oil deliveries through the pipeline would only recoup expenses given oil prices of at least $80 per barrel. But Russia has agreed to a price of just $57 per barrel for its exports to China. (…)
It is not difficult to see that the Kremlin’s China strategy isidentical to the course pursued by former Yukos CEO MikhailKhodorkovsky — with only one significant difference. If you build anoil pipeline for only $4 billion, develop the region’s oil deposits andsell that oil to China at market prices, you turn eastern Siberia intoan extremely powerful economic zone in which the interests of bothcountries are fused like Siamese twins. This would make a war betweenRussia and China far less likely since a conflict would result inunacceptable economic losses to both sides.
But if you buildthe world’s most expensive oil pipeline for $29 billion while signing acontract to export that oil at a loss and if your idea of developingoil deposits in eastern Siberia boils down to dismantling Yukos andappropriating its assets, then the loss of those territories becomesinevitable — without a single shot being fired.
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3 Comments
Wow, talk about piling assumption on assumptions in order to pole-vault to a conclusion!And for what?? To raise the spectre of a Chinese move on Siberia? The Chinese government are far more focused on the operations of USN hydrological survey ships conducting preparations within the Chinese EEZ for a US-China naval war, and hence are very concerned to keep relations with Russia as friendly as possible.
Wow, talk about making a totally meaingless, vapid comment in order to try pathetically to cover up a damaging analysis.And for what?? To help Vlad Putin and his KGB cronies stay in power forever and bankrupt the state just as in Soviet times?If you actually read the article, you dolt, you’d see that the cost of the pipeline has risen SEVEN HUNDRED PERCENT and the price of the oil used to pay for it is FIXED. Yulia suggests might try to pull out of an inked deal rather than honor it and be bankrupted. The Chinese may not be inclined to let Russia do so, precipiating a massive crisis Russia is in no way capable of winning. Meanwhile, it will be exposed as failing to honor a solumn written agreement.If you think that’s not significant, you need to have your puny little head examined.
Phoby, Phoby, Phoby…..Yes, the assumption pile grows ever higher.What do we know about the original estimate? Are both lines on the same route and with the same capacity? And given that the price of oil in 2003 was substantially lower than $57/bbl, it’s not so clear that the price is that bad. And what is the total capacity o the project? 300 million tons over 20 years works out to ~300kbpd. Druzhba’s capacity is 7 times that. What will be the price of the remainder, if any? The article contains no answers to questions like this, so what you choose to call “analysis” is anything but.