Russia’s Far Eastern Frontier: Energy as a Political Tool

As recently reported in The Japan Focus, Russia’s Far Eastern frontier is now turning into the place where energy export becomes a political tool in shaping the country’s relations with regional neighbors.  China, the two Koreas, and Japan are hungry for energy, natural resources and, at the same time, seek economic and political cooperation. In these circumstances, the opportunities offered by trans-national railroads and pipelines appear to be more powerful than weapons. As the article notes:

… the sharp rise of oil and gas prices has enabled Moscow to utilise its energy reserves to achieve domestic and foreign policy goals. The nationalisation of the largest Russian oil company Yukos in 2004, along with the consolidation of state-owned Gazprom and RAO Unified Energy System in 2005, have further empowered the Kremlin in making decisions on the direction and length of new pipelines, high-voltage power lines, and railways, literally shaping a new geopolitical landscape in Northeast Asia.

… the most significant issue involving Russia in Northeast Asia is its abundant oil fields and natural gas reserves. …. Expectations about East Siberian energy reserves have risen especially after April 2006, when Russia started building the $12.5 billion Taishet-Skovorodino-Kozmino oil pipeline. A series of disputes over what route the pipeline would take preceded the final decision. [8] Initially, China’s Daqing was considered as the destination for a shorter and cheaper private-owned pipeline. This plan was lobbied by the then powerful Yukos CEO, Mikhail Khordokovsky. However, the Kremlin and state bureaucracy promptly intervened, jailing the beleaguered oligarch and redirecting the pipeline to the Pacific coast of the Russian Maritime Province.

Russia’s primary goal is to develop its sparsely populated Far Eastern region, which consists of nine territories that are extremely heterogeneous in political, social and economic terms. Each of the nine Far Eastern members of the Russian Federation essentially has its own political system, its own business elites, and enjoys a degree of autonomy, making the coordination of common goals for the region very difficult. [9] Thus, development projects that would benefit such provinces are in Moscow’s interest. Still it was primarily the international policy factor that played the major role in influencing the final decision to direct the oil pipe on the Russian coast of the Pacific.

….A large pipeline project was supposed to send natural gas from the Kvyktinskoye field in Irkutsk province through China to South Korea. One of the routes under consideration would have gone through North Korea and it was envisaged that Pyongyang would receive free natural gas in lieu of a pipeline transit fee. [14]

Nevertheless, despite enthusiasm for the idea, it seemed clear that running a pipeline through an impoverished and rapidly nuclearizing North Korea was risky. Due to both cost and security concerns the DPRK was left out in the results of a November 2003 preliminary feasibility study conducted by Chinese, Russian and South Korean companies. Tentative agreement was reached on a pipeline route that would go from Irkutsk through China to the port of Dalian and under the Yellow Sea (West Sea) to South Korea;s Pyeongtaek. North Korea would be bypassed out of fear that Pyongyang might have too much control over the supply of gas to the South. [15]

When Gazprom took control over this project in 2005, it started changing the terms of the proposed deal. Reserving the gas from Kovykta for domestic use, the Russian side offered China and South Korea the natural gas from the still underdeveloped Chayandinskoye field in Sakha. In that case the pipe route would pass through Khabarovsk and Nakhodka, approaching the Korean Peninsula from the east. Upon learning this news the South Korean Kogas Corporation refused to sign the deal as it would have been much costlier and, ultimately, devoid of economic sense. The poor level of customer service by the state-owned Gazprom and the low demand for liquefied natural gas in South Korea (only 13 percent of energy consumption) were blamed for the failure of this project. [16]

The prospects for the export of Russian electric power to the countries of Northeast Asia, as well, depend as much on political will and stability in the region as on the state of North Korea’s power grid infrastructure. At present the Far-Eastern division of the Russian government-controlled RAO Unified Energy System is considering several different projects, which are aimed at helping North and South Korea to satisfy their energy needs. According to one plan, Russia will direct electricity from the Bureyskaya Hydropower Plant via the DPRK to the Republic of Korea (ROK). The high-voltage (500 kilovolt) electrical power transmission lines can be fixed very high above the ground to make illegal tapping into or interruption of electricity by the North unlikely. Neither will South Korea be able to exert any pressure upon the DPRK: power allocated for the North will go along a separate line because the electrical grids in the two Koreas are technologically different. Another plan suggests that Russia will be able to provide 800 MW of electric power to North Korea in lieu of the energy promised by South Korea to that country.

….Recently, for the first time in the post-Soviet era, North Korea saw a major Russian investment. In the city of Pyeongseong the Russian auto plant KamAZ opened its first assembly line, specialising in the production of medium-size trucks named “Taebaeksan-96”. Although less than 50 trucks were assembled in 2007 this cooperation became an important milestone in the development of bilateral relations. While the project doesn’t violate United Nations sanctions on North Korea, it shows Moscow’s drive to expand its influence in the country. Ironically, the more trucks assembled the heavier North Korea’s dependence on imported fuel, engine oils and other petrochemical products.

The importance of DPRK’s the Rajin-Seonbong Special Economic Zone to Russia’s national interests continues to grow. The state-run monopoly OAO Russian Railways is currently upgrading its connections with North Korea in Khasan-Tumangang, investing at least 1.75 billion roubles ($72 million) in the project, and plans to participate in an ambitious plan to rebuild a trans-Korean railway. By connecting Rajin (and the rest of northern Korea) to its Trans-Siberian Railroad, Russia is hoping to benefit from the transit of South Korean and Japanese cargo which could be sent via its territory to Central Asian and European markets. Pyongyang seems to endorse these plans and other Russian initiatives but has not committed any financial resources. [21]

…As it was in the last century, rail remains a symbol of Russia’s power in the region. By extending its transportation network and pipeline infrastructure, Russia is trying to get back into the grand game in Northeast Asia, which it was forced to leave with the collapse of the Soviet Union. The only difference between then and now is that the main motivating factor these days is profit and economic reasoning, not ideological considerations…”

This entry was posted on Friday, August 1st, 2008 at 11:48 am and is filed under China, Gazprom, North Korea, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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