Marcus Papadopoulos says Moscow’s energy expansion into the Asian market is making other countries’ increasingly wary of Russia’s relationship with China
RUSSIA’S position as the world’s predominant energy supplier was strengthened last month when the country opened its first liquefied natural gas (LNG) plant in Sakhalin Island. This realised a long-held Kremlin objective to expand its tentacles into Asia’s energy-hungry markets. A highly significant ecostrategic and geostrategic development, this will increase United States and European Union concerns that access to the Asian markets will enable the Russian Federation to exploit its status as an energy superpower to an even greater degree when conducting foreign policy.
During the unveiling of the Sakhalin plant, Russian President Dmitri Medvedev announced: “I will not conceal that we are happy about this. The project is of strategic significance, both to our country and to our foreign partners. It will promote our capabilities on gas supplies and Russia’s position as a global supplier of natural resources in the world.”
The plant is situated at a place called Prigorodnoye in the southern territory of Sakhalin Island off the east coast of Siberia, which was seized by the Soviet Army from Japan in August 1945. It has the capacity to produce 9.6 million metric tons of LNG annually, which will then be transported to customers by tankers capable of holding between 18,000 and 145,000 cubic metres of LNG.
Sakhalin Energy owns the Prigorodnoye plant and is responsible for developing alternative energy outlets for the Asia-Pacific region. Gazprom, the Russian state-controlled gas company, has a 51 per cent share in Sakhalin Energy. Royal Dutch Shell, Mitsui and Mitsubishi have 27.5 per cent, 12.5 per cent and 10 per cent respectively.
Commenting on Russia’s first LNG plant, Sakhalin Energy’s chief executive officer Ian Craig said: “Sakhalin has now firmly established its position on the global energy map. It will supply around
5 per cent of the world’s LNG and make a significant contribution to strengthening global energy security.”
US, Japanese and South Korean companies have already signed contracts with Sakhalin Energy to buy most of its LNG over the next 25 years. Japan, which has almost no natural resources of its own, will be in receipt of approximately 65 per cent of Prigorodnoye’s output.
According to some analysts, LNG’s role in the gas market will increase greatly in the near future. By 2030, it is believed that LNG will account for 60 per cent of the global gas trade. The current figure is 30 per cent.
Linda Cook, gas and power executive director with Royal Dutch Shell, notes that: “LNG demand is forecast to grow more quickly than for gas in general, at about 10 per cent a year over the next 10 years.”
The Kremlin has set itself the ambitious goal of securing between 20 per cent and 25 per cent of global LNG exports by 2030. And the Russians are in a strong position to achieve this. The Lunskoye gas field, on the north-eastern shelf of Sakhalin Island, has an estimated reserve of 500 billion cubic metres of gas.
The opening of the Sakhalin plant will deepen the anxieties of many policy-makers in Washington and Brussels, who believe that the Kremlin is wielding energy as a political weapon in the international arena – much as it did with Ukraine in 2006 and 2009. Whereas Western leaders in the 19th and 20th centuries thought that Moscow used pan-Slavism and communism to increase its foreign influence, today the West contends that Russia is using its vast reserves of gas and oil as a foreign policy weapon to achieve “old-time Russian imperialist aims”.
The European Union, which relies on Russia for between 40 per cent and 50 per cent of its overall gas consumption, is concerned that, as a result of tension between Moscow and the West, the Kremlin could one day decide to start exporting most of its gas to Asia – specifically China. And the US, while not dependent on Russian gas, is nevertheless worried by the prospect of Russia feeding the Chinese economy with gas and thereby enabling it to expand even further. That would mean greater political and military global clout for Beijing. The European and American fear was compounded the day before the unveiling of the Sakhalin plant, when the Russian state-controlled oil company, Rosneft, received a $25 billion loan from China to help to provide the Chinese economy with oil for the next 20 years.
Relations between Moscow and Beijing became strained as a consequence of the Sino-Soviet split in the 1960s and the ensuing border battles between Soviet and Chinese forces along the Siberian border. However, since the collapse of the Soviet Union, the relationship between Russia and China has improved considerably. In 2001, along with four former Soviet republics in central Asia, Russia and China established the Shanghai Co-operation Organisation – an inter-governmental body with the stated aim of defending and preserving peace and stability in central Asia (and with the unofficial aim of keeping American influence out). Since then, both the Russian and Chinese militaries have held joint war manoeuvres on one another’s territories. And Moscow has handed two previously disputed islands along the Amur River over to Beijing.
However, all this conceals the mutual suspicion which still exists between the Russian and Chinese elites. The Kremlin looks at China with unease over its growing economic and military power – and also envy at how the Chinese, unlike the Russians, were able to convert their economy successfully from a state-run to a free market one.
The Russian leadership fears that China’s growing population and its increasing demand for natural resources could tempt Beijing to launch a military incursion to secure the sparsely populated regions in Siberia along the Chinese-Russian border – something that Japan planned to do in the 1930s, but was finally deterred from by its emphatic defeat at the hands of the Soviet Union at the battle of Khalkhin-Gol in 1939.
Russia’s concerns over Beijing’s intentions have resulted in the latter ceasing to be the main purchaser of Russian weapons. Moscow refuses to supply the Chinese with state-of-the-art equipment, such as air defence systems and submarine components. The Chinese government has decided that it cannot rely on the Russians to help modernise the People’s Liberation Army and so will attempt this on its own.
The opening of the Sakhalin LNG plant has augmented Russia’s position as the leading global energy supplier. However, the West should not concern itself too much over the possibility of Moscow diverting most of its gas to the Chinese economy. Since the Brezhnev era, many in the Russian elite have feared China more than the US, believing that while the Americans are rational decision-makers, the Chinese are not. Western governments should take some consolation from that as Russia’s moves into the Asian energy market intensify.