Pipeline Politics in Asia: The Intersection of Demand, Energy Markets, and Supply Routes

The Geopolitics of Northeast Asia’s Pipeline Development

17 the national bureau of asian research nbr special report #23 | september 2010 The Geopolitics of Northeast Asia’s Pipeline Development Shoichi Itoh ShOiChi itOh is a Non-resident Adjunct Fellow at the Center for Strategic and International Studies (CSIS) and an Associate Senior Research Fellow at the Economic Research Institute for Northeast Asia (ERINA). He can be reached at . 19 the geopolitics oF northeast asia’s pipeline development u itoh R oughly a decade has passed since Russia’s pipeline politics in Northeast Asia started to receive global attention. The first phase of the Eastern Siberia–Pacific Ocean (ESPO) crude pipeline came on line in December 2009, stretching 2,700 kilometers (km) from Taishet in Eastern Siberia to Skovorodino, located 70 km north of the Sino-Russian national border (see Figure 1 below). A 1,000-km spur pipeline from Skovorodino to the Daqing oil field in China’s Heilongjiang Province is scheduled for completion in autumn 2010. Russia plans to increase oil exports to China, including 15 million tons (Mt) of supplies by the spur pipeline to China. Moscow has also mapped out that another 15 Mt of crude oil will be supplied to the Kozmino port in Nakhodka Bay on the Pacific Ocean by rail before the second phase of the ESPO Pipeline is to be completed in the future. After completing the second-phase pipeline (2,000 km in length), Russia aims to realize additional capacity for supplying up to 50 Mt per annum of crude to the Pacific coast. Meanwhile, the projects for expanding natural gas pipeline networks have remained on paper, though the first liquefied natural gas (LNG) cargo was loaded from the Sakhalin-2 project in March 2009. “The Energy Strategy of Russia for the Period up to 2030” (ESR-2030), approved by the Russian government in November 2009, emphasizes Moscow’s plan to accelerate exploration and development of hitherto untapped hydrocarbon resources in Eastern Siberia and the Far East (hereafter abbreviated as “eastern Russia”). Russia aims to increase crude production in eastern Russia from 14.3 Mt in 2008 to 44–58 Mt by 2015, 71–83 Mt by 2022, and 101–8 Mt by 2030; and natural gas from 13 billion cubic meters (bcm) in 2008 to 43–53 bcm by 2015, 91–122 bcm by Beijing Tokyo Ulaanbaatar Pyongyang Seoul R U S S I A KYRGYZSTAN CHINA JAPAN MONGOLIA SOUTH KOREA NORTH KOREA Western Siberia eastern Siberia russian Far east kozmino Daqing  angarsk Skovorodino  taishet      Chayandinskoye Talakanskoye Verkhnechonskoye Kuyumbinskoye Yurubchenskoye Tersko-Karnovskoye     CHINA pipeline routes EPSO first phase: taishet to skovorodino 2,694 km (completed december 2009) EPSOsecondphase:skovorodino to Kozmino ~2,000 km EPSO under construction: skovorodino to daqing Western siberia to angarsk (existing oil pipeline)  discovered oil fields  discovered gas fields F I G U R E 1 the eastern sibera–pacific ocean pipeline 20 nbr special report u september 2010 2022, and 130–52 bcm by 2030.1 Accordingly, this strategy projects that eastern Russia’s share in the country’s total oil production will increase from 3% in 2008 to 10%–12% by 2015, 12%–14% by 2022, and 18%–19% by 2030. Natural gas production is projected to increase from 2% in 2008 to 7%–8% by 2015, 12%–14% by 2022, and 15% by 2030.2 Russia hopes to raise the Asia-Pacific region’s percentage of the country’s total oil exports from 8% in 2008 to 10%–11% by 2015, 14%–15% by 2022, and 22%–25% by 2030; and the region’s percentage of Russia’s natural gas exports from 0% in 2008 to 11%–12% by 2015, 16%–17% by 2022, and 19%–20% by 2030.3 Four major reasons for Russia’s eastward advancement in the energy sector can be identified. First, hydrocarbon potential, especially that of crude oil, has peaked in Western Siberia, where about 70% of crude and more than 90% of natural gas have been produced to date. The ESR-2030 forecasts that maximum crude production in Western Siberia will decrease from 333 Mt in 2008 to 312 Mt by 2022 and 303 Mt by 2030. The growth in crude production in eastern Russia is expected to make up for the gradual decline of production in Western Siberia. With respect to the KhantyMainsk Autonomous Region in Western Siberia, which produces roughly 60% of Russia’s crude oil, 67% of oil reserves are made...