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The Great East Siberia-Pacific Ocean Oil Pipeline

The Oil Drum has posted an extensive and well researched article by a Marshall scholar about the East Siberia-Pacific Ocean oil pipeline in Russia, a point of serious geopolitical tension. siberianpipeline.jpg Some excerpts:

Siberian Nights: The East Siberia-Pacific Ocean Oil Pipeline As the 2008 Russian presidential election approaches, no one is more concerned about Russia’s future policy direction than those that stand to benefit from Russia’s energy largesse. In particular, China and Japan are very anxious about the final routing of the East Siberia – Pacific Ocean oil pipeline (VSTO – its Russian acronym), which is expected to be the world’s longest oil pipeline (2,500 miles), originating in East Siberia at Taishet and extending to a Pacific port at Kozmino Bay. VSTO is Russia’s first pipeline to East Asia, ultimately unlocking the supposedly vast oil reserves in East Siberia, an area that has been likened to the final frontier of hydrocarbons exploration. Whomever is elected (ie, appointed) president in 2008 will be the one who determines which country will benefit most from VSTO. What makes VSTO so critical to the Chinese and Japanese is the changing energy and geopolitical landscape. In 2003, China surpassed Japan to become the world’s second-largest consumer of oil. Chinese state oil companies (CNPC, Sinopec, and CNOOC) are pursuing a “going-out” strategy, where promises of Chinese investment in other sectors of a nation’s economy secure guaranteed supplies of hydrocarbons, such as China’s good-will investment in the Tehran subway system. The Chinese are rightfully worried about their dependence on Middle Eastern oil sources and the routes by which that oil is transported. China receives 51% of its oil from the Middle East. The vast majority of that oil is shipped through the Strait of Malacca, and therefore, is threatened by U.S. naval dominance. Thus, the Chinese are seeking to diversify their energy supply base, not only by increasing production of coal and hydropower, but by developing oil and gas pipelines with neighboring Kazakhstan and Russia. More than any other region of the world, energy is seen in East Asia as something of a zero-sum game: Japan increasingly views China’s positive gains in securing energy supplies as its own loss. Even though the Chinese still don’t have a ministry-level agency to coordinate energy policy, Japan feels that it is a step behind. Eighty seven percent of Japanese oil is imported from the Middle East – an extraordinary amount that also must pass through the Strait of Malacca. Hence VSTO begins to take on hues of geopolitical significance. While technically the routing of VSTO is not important from a market perspective (any oil purchased at world prices from VSTO by either Japan or China will simply free up oil supplies elsewhere), in light of the strategic chokepoints through which oil traverses – chokepoints that are critical to both the Chinese and Japanese economies (and subsequently, social stability in China) – Russia’s ultimate decision is of paramount importance to both nations. After years of Sino-Russian and Japanese-Russian memoranda of understanding, joint communiques, and declarations of intent, each ostensibly negating the one before, in 2005 the “final” route chosen by Moscow was the best (or worst) of both worlds. VSTO was planned to extend from Taishet to Perevoznaya Bay, just south of Vladivostok, with a branch line running from the Russian border town of Skovorodino to Daqing (Kozmino Bay would later be selected over Perevoznaya as the terminus). The road to that decision was more than circuitous. … However, during the second half of 2003, a pipeline feasibility study had still not been approved by the appropriate Russian agencies. Nezavisimaya Gazeta reported that the lack of a coherent framework for action by the Russian government was leading Russian oil companies – including Yukos – to act independently. Increasingly, it appeared that there was a behind-the-scenes struggle occurring between Yukos and Transneft, the state-owned pipeline monopoly, over the final route. Transneft, with everything to gain by constructing the longest route possible, was pushing for a pipeline to the Pacific, not China.

Read complete article here.