China, Japan Worry About Over-Reliance On Russian Energy

As Russia wielded its energy weapon against Ukraine to devastating effect last week, China and Japan were wary observers, worrying that one day the same might happen to them, observers said. Neither Asian power has ever felt entirely comfortable with the Kremlin, and its decision to drastically raise the price of the gas it sells to Ukraine has done nothing to boost their confidence in the Russian bear.

"To control a nation's energy is to control the nation's activities," said Hiroshi Watanabe, a Tokyo-based economist at the Daiwa Institute of Research.

"Russia seems to have lost some trust by making threats through a reduction of supplies," he said.

Unfortunately for China and Japan, Russia has the world's largest natural gas reserves and is the second largest exporter of crude oil, making it too big an actor to be ignored in Asia's great energy game. Nowhere is the complexity of the relationship between Moscow, Beijing and Tokyo more in evidence than in Russia's plan to build a pipeline transporting Siberian oil to the Pacific coast.

Russia announced on Jan. 6 it expected to start construction this summer of the pipeline, which will cost an estimated $15-$16 billion and have a capacity of 80 million tons a year. When complete, it will run for 4,200 kilometers (2,600 miles) from Taishet in central Siberia to Perevoznaya Bay on the Pacific coast close to Russia's southeastern border with China.

Russia appears to have left it up in the air which of the two Asian economies gets first priority on the pipeline -- perhaps, observers said, in the hope of squeezing out the best possible deal. Last week Tokyo played down the Russia-Ukraine spat. "There is no change in our policy of proceeding with the oil pipeline construction project with Russia in the aim of securing stable energy supplies," said an official at the Agency for Natural Resources and Energy.

China is not overly intimidated by Russia's poker play, and has even gone on the offensive. "The Chinese have some tricks up their sleeves too," said Lim Tai Wei, a Japan Foundation fellow and an observer of China's quest for energy security. "It was able to reach an oil deal with Kazakhstan, traditionally within the Russian sphere of influence, without Russian mediation," he said.

Diversification tops the agenda for both China and Japan, and as long as dependence on one single source is avoided, both will feel reasonably secure, according to analysts. Manabu Fukuchi, a senior consultant at the Nomura Research Institute, noted that even after a deal with Russia, Japan would still be able to source oil from the Middle East, which currently provides 90% of its imports. China is actively looking for alternatives, including liquefied natural gas, or LNG, from countries such as Malaysia, Indonesia and Australia.

Copyright Agence France-Presse, 2006

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