Quake Fuels Energy Battle

Russia's offers to quake-stricken Japan may spur competition with China.
By Michael Lelyveld
Chinese workers prepare to ship oil to quake-hit Japan at a port in Dalian city, March 29, 2011.

Japan will be cautious about competition with China as it seeks new energy sources to fuel its recovery, analysts say.

Although Japan's energy demand has slumped since the March 11 earthquake, it is likely to rebound sharply as the country rebuilds and seeks to replace some of its lost nuclear power.

So far, oil imports have dropped by about 1 million barrels per day from last year's average of 3.7 million barrels, according to New York Times and Dow Jones reports.

But the expected recovery in demand has raised concerns that Japan could come into competition with neighboring China for imports in a high-priced market. Last year, China's imports soared to a record 4.8 million barrels per day.

Stephen Blank, professor of national security studies at the U.S. Army War College, said increased energy demand could lead to frictions between China and Japan over resources.

"That's quite possible," said Blank. "There already are frictions, and there were frictions before the earthquake, and I think it's inherent in the nature of the beast."

After months of tension with Tokyo following a border dispute over fishing rights in the East China Sea last September, Beijing responded to the quake with an outpouring of sympathy and aid.

Russian export boost

But analysts say some resource offers from Russia may renew competition between the two Asian economic powers as Japan seeks energy supplies for recovery.

Within days of the disaster, Prime Minister Vladimir Putin and other top Russian officials announced plans to boost exports of oil, fuel and liquid natural gas (LNG) to Japan.

Moscow also ordered a speedup at a Sakhalin Island oil and gas project in Russia's Far East to meet expected Japanese demand and revived an underwater cable project for power supplies.

The plans were part of an unprecedented series of Russian investment opportunities offered to Japan for developing oil, gas and coal.

But the concern is that Russia has already earmarked some of the resources, like Siberia's giant Kovykta gas field, as supply bases for China at a time when monopoly Gazprom is negotiating prices for deliveries.

Blank sees an effort to stir the competitive pot between China and Japan.

"I think the Russians want to force the Chinese to give them more concessionary terms," he said, calling the triangular strategy a classic ploy.

Conflict over prices

In recent weeks, Russia has also come into conflict with China over oil prices.

On March 18, the daily Kommersant said that Russia's state-owned Rosneft oil company has complained about underpayments from China National Petroleum Corp. (CNPC) for supplies under a massive $25-billion loans-for-oil deal signed in 2009.

The disputed amount has already risen to $100 million in the first two months of this year, Reuters reported. The disagreement may be headed to court.

Alexandros Petersen, research director at the London-based Henry Jackson Society Project for Democratic Geopolitics, said that Russia sees an opportunity to raise its exports to Japan, while also sending a message to China.

"It certainly should be viewed in the context of negotiations with China because this is the way things are done in Gazprom and Russia's way of operating when it comes to energy geopolitics," he said.

But Petersen believes Japan is likely to be careful about Russia's offers and any potential conflict with China.

"From the Russian point of view, it makes a lot of sense to court the Japanese in a moment of relative weakness. But from the Japanese point of view, there's a lot of wariness in engaging in the tumultuous energy geopolitics of Eurasia," he said.

In its current state, the last thing Japan may need is a new source of friction with Beijing.

Petersen believes Japan is more likely to seek increases in LNG from all major suppliers like Australia and Indonesia rather than only from Russia.

Stephen Blank agrees that Tokyo will be concerned about making big new energy investments in Russia. Japan already imports LNG from Russia's Sakhalin-2 project, in which Japanese companies hold a 22.5-percent share.

"I think they'll be cautious," Blank said. "They may take the energy that's being offered now, but I don't think they're going to invest in Russia. Quite frankly, I don't see the point from their point of view."


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