Russian Oil Cuts Threaten Chinas Energy Security

2004-10-04
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A decision by the Russian oil giant Yukos to slash its exports to China has heightened concern in Beijing about future energy security, as the economy booms and oil demand continues to rise.

"The problem for them is that those are all long-haul imports. They're all vulnerable to disruptions of the shipping lanes or potential conflict."

On the eve of Premier Wen Jiabao's trip to Russia to try to restart stalled negotiations over an oil pipeline, Yukos said it would cut off rail shipments to the Chinese border, citing high transportation costs.

Russia's courts have hit the company with tax claims of over U.S.$7 billion, frozen its accounts, and jailed its biggest shareholders on fraud charges.

"The Chinese have been also seeing that Russia is a very unpredictable economic partner, as well as potentially a very unpredictable political partner," Fiona Hill, a senior fellow in foreign policy studies at the Brookings Institution in Washington, told RFA. "And so, it will cast a shadow, I think, over Russian relations."

Thirsty economy

Yukos has signed contracts with China National Petroleum Corp. (CNPC) and refiner Sinopec to deliver at least 5.5 million tons of oil this year, or an average of 110,000 barrels per day. But it’s actually been shipping as much as 200,000 barrels per day.

All that changed four days before Wen's visit to Moscow, when Yukos warned it could no longer afford to ship about 100,000 barrels per day to CNPC and would soon have to stop supplies altogether.

Russian analysts said the announcement was timed to embarrass Moscow and force the government to explain its actions against Yukos, which many say are symptomatic of growing authoritarianism by President Vladimir Putin's government.

Shipping lanes vulnerable

While the actual size of the export cuts is insignificant, there are implications for Sino-Russian relations and the reliability of oil supplies from Russia in the longer term, analysts said.

"Even for China, 100,000 barrels a day is not a significant amount of its imports," China energy expert at the University of Dundee, Philip Andrews-Speed, told RFA.

"But if the whole of the Russian import by rail to China was stopped, that would provide a significant challenge, because China would need to import all of that oil by ship."

Such imports force Beijing to look further afield to satisfy demand, to African countries such as Angola and Nigeria, where political instability might make supply lines vulnerable in future.

Unclear future

China's imports have averaged 2.4 million barrels per day so far in 2004, with demand growing by almost 40 percent compared with the same period last year—making any supply problem a matter for grave concern in Beijing.

"China's reacted to this by trying to diversify its suppliers and now buys quite a bit of oil in West Africa as well as the Middle East," said Jason Feer, bureau chief at Petroleum Argus in Singapore.

"The problem for them is that those are all long-haul imports. They're all vulnerable to disruptions of the shipping lanes or potential conflict."

The outlook remains unclear for Putin's scheduled visit to Beijing in mid-October.

Putin previously signed accords for the oil pipeline to Daqing both with President Hu Jintao in May 2003 and with former President Jiang Zemin in July 2001.

On the Web:

Official People's Daily report on Russian oil import cut

IAGS Spotlight on China's energy security

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CH. 1: MANDARIN | CANTONESE

CH. 2: VIETNAMESE | BURMESE | KOREAN

CH. 3: KHMER | LAO | UYGHUR

CH. 4: TIBETAN

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