It sent the bulk of oil and gas exports to Europe after major oil and gas deposits had been discovered in its northern regions in the 1960s. The European Union receives a half of its imported gas and a third of imported oil from Russia, which delivers nearly all of its hydrocarbons exports to Europe.
Only 3% of export oil and no gas are delivered by rail to Russia's Eastern neighbors. Main pipelines, which are Russia's basic means of exporting hydrocarbons, end long before Lake Baikal in Siberia. A highway from the western borders to its easternmost city and port on the Pacific coast, Vladivostok, was opened only recently.
At the same time, Russia finished building the Baikal-Amur Railway Line, which was started in the 1970s, and found that there was not much it could carry along it. The mineral wealth of East Siberia and Russia's Far East is underdeveloped, and economic exchange between the European and Asian parts of the country is insignificant.
The government has started a new stage in the country's economic development strategy. The main objective is to combine energy security with accelerated economic development of the eastern regions. It can be attained through the diversification of hydrocarbons export routes, which can be extended to the Asia-Pacific region, beginning with Northeast Asia (China) and later embracing Japan and South Korea.
The Asia-Pacific region is the fastest developing energy market in the world. Unlike Europe, whose energy policy is aimed at regulating, and possibly curtailing, demand, notably by introducing energy-saving technologies, Asian countries' energy consumption is on the rise.
Therefore, a third of Russian oil exports and substantial volumes of natural and liquefied gas should be exported to Asia by 2020. Russia's geographic position creates unique opportunities for setting up transport corridors that would be the best ground route linking Asia-Pacific and South Asian countries with Europe.
The implementation of this task started with the adoption of two crucial decisions. In late 2004, the Russian government issued a resolution on the construction of a 4,000-km East Siberia - Pacific Ocean (ESPO) oil pipeline with a throughput annual capacity of 80 million tons.
Out of this amount, up to 30 million tons of oil should be sent along the first leg to Daqing, the oil producing center of China, and some 50 million tons to the Pacific coast (second leg). The pipeline begins in Taishet in the Irkutsk Region and will end in the Kozmino Bay near the port of Nakhodka on the Sea of Japan. Oil is to be supplied from the fields in the north of West Siberia, and later from the East Siberian and Yakutian fields, which are being developed now.
During President Vladimir Putin's official visit to China, energy giant Gazprom and China National Petroleum Corporation (CNPC) signed an agreement on the annual delivery of 30-40 billion cubic meters of gas to China after 2010, with a possibility of increasing deliveries to 60-80 billion.
To attain this goal, Gazprom needs to build a 3,000-km Altai pipeline from the Yamal Peninsula to the Tarim gas province in China's Xinjiang Uygur Autonomous Region. At the second stage, it should organize gas export along another pipeline from East Siberian fields. The implementation of the project depends on the development of the Kovykta gas condensate field in East Siberia's Irkutsk Region (with a prospective annual output of over 30 billion cubic meters).
In addition, Russian oil and gas companies are showing a growing interest in international hydrocarbons projects in Sakhalin.
Gas agreements with China are at the drafting stage, and the Sakhalin projects are playing a relatively independent role in the development of the Far Eastern economic resources, whereas the construction of the ESPO pipeline is in full swing.
It will be a vital instrument of Russia's economic and geopolitical strategy. To begin with, it was launched as an alternative project to the preliminary agreement between oil company Yukos, which was declared bankrupt last summer, and CNPC on the construction of an oil pipeline from East Siberia's Angarsk to China's Daqing for the annual delivery of 30 million tons of oil for 20 years. The agreement was tentatively approved by the Russian government, which later halted the project as unprofitable, because it stipulated a purely commercial exchange of oil for money on the border. Its political benefits were uncertain, and it did not assure Russian companies' advance to the Chinese market.
The ESPO project was designed fully in keeping with Russia's new strategy as a conduit for Russian exports to China and other Northeast Asian countries (Japan and South Korea), as well as potentially to Southeast Asia. It is not surprising therefore that the business community and the top political leadership of Japan have shown interest in the pipeline project and a desire to contribute to the development of Russia's Far Eastern oil resources.
In my opinion, Russia will never sign a peace treaty with Japan without developing the East Siberian and Far Eastern resources. National ambitions are only part of the problem of the "Northern Territories," as the four South Kuril Islands are described in Japan. Another equally, and possibly more important factor is the absence of Japanese interest in economic cooperation with Russia throughout the post-war years.
The ESPO project and the large-scale program of economic development of Russia's eastern regions can greatly improve the situation.
