Gas Deal Strains China-Japan Ties

Oct. 8, 2006: New Japanese Prime Minister Shinzo Abe (R) shakes hands with Chinese counterpart Wen Jiabao before a welcome ceremony at the Great Hall of the People in Beijing. Photo: AFP/Pool

Energy competition may raise tensions between China and Japan despite a recent warming in relations, experts say.

The potential for renewed trouble surfaced Oct. 21 with reports that developers of a major Russian energy project had agreed to sell all of its natural gas to China instead of Japan.

Under the preliminary deal, first reported by Japan’s Kyodo News agency, U.S.-based Exxon Mobil would sell the gas from Russia’s giant Sakhalin-1 project to China National Petroleum Corp. (CNPC) for use in northeast China.

The U.S. $17 billion project on the energy-rich Sakhalin Island off Russia’s Pacific coast is some 372 miles from China’s border. Japan had counted on getting the fuel in the form of liquefied natural gas (LNG) for its own market instead.

The gas market and supply picture for the long term is getting much tighter in Asia.

In addition to competing for Sakhalin gas, China and Japan have been unable to settle their claims to a gas field in the East China Sea, where the China National Offshore Oil Corp. (CNOOC) has said it started production in July despite Japanese protests.

Backdrop of improved ties

The two countries are also competing for oil supplies from a U.S. $11.5 billion pipeline that Russia is building across Siberia.

In an interview with Radio Free Asia, Mikkal Herberg, director of the Asian Energy Security Program at the National Bureau of Asian Research in Seattle, said competition for energy resources could complicate the two countries’ moves toward a “better, broader strategic relationship.”

Herberg said renewed tensions over the outstanding issues between China and Japan could undo the progress made during the October visit to China by Japan’s new prime minister, Shinzo Abe.

“It’s certainly going to make it that much harder to sustain the better atmospherics that we’ve seen in the last few weeks, and you could raise questions as to how far in reality they can really carry this warming of relations.”

“The gas market and supply picture for the long term is getting much tighter in Asia,” and China and Japan are competing in markets where energy supplies are limited, Herberg said.

Kang Wu, head of China energy projects at the East-West Center of the University of Hawaii, said the Sakhalin deal came as a shock to Japan, which has had its eye on Sakhalin gas for a decade or more.

'It can go either way'

But Japan’s market and the high costs of delivery did not allow for a competitive deal.

“Honestly, on economic terms, the Sakhalin-1 gas should go to China. But on the political and geopolitical front, this is a very sensitive issue,” said Wu.

“So no matter how and when they announce officially that there’s no pipeline to Japan, some Japanese bankers and other advocates of this pipeline will be very disappointed.”

Energy competition could re-emerge as a problem for the two countries if the diplomatic momentum of the Abe visit to China is not maintained, Wu said. “These sensitive issues can rouse up newspaper opinion and even nationalist feelings quite easily.”

Wu said China and Japan must make progress on at least one of their outstanding disputes such as the East China Sea gas issue to offset the effects of competition.

“Strategically, they need to reach some agreement to show the willingness to move rather than just pay lip-service. The specific issues can [either] solidify some of the achievements at the top or poison the whole relationship. It can go either way.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.


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