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Last Updated: Tuesday, 21 March 2006, 20:20 GMT
Russia keeps China energy options open
By Alexander Koliandre
BBC World Service reporter

Vladimir Putin and Hu Jintao after the talks in Beijing
China is hungry to utilise Russia's abundant energy resources
Russia and China are engaged in a complicated dance over energy - complicated enough to baffle many observers.

At the head of a Russian delegation to Beijing, President Vladimir Putin has signed a number of energy deals which - had the signatories been different - might have changed the shape of the global oil and gas market.

Moscow promised - among other deals - to build two gas pipelines from Eastern and Western Siberia to China, and to join forces with Chinese state energy company CNPC in developing gas offshore of Sakhalin, an island east of the Russia's mainland.

Energy-hungry China is obviously interested in Russia's vast oil and gas reserves.

But despite several high-profile promises, 'Moscow has dragged its feet implementing joint projects such as a planned eastern oil pipeline', says Alice Lagnado of Argus Media, an energy publisher.

Multiple customers

In a world where the stakes for energy supplies are sky-high, China is not the only game in town.

Although Russia's oil and gas reserves are huge, they are not bottomless.

And there are other buyers - notably Japan and Europe.

Despite several high-profile promises, Moscow has dragged its feet implementing joint projects such as a planned eastern oil pipeline
Alice Lagnado
Argus Media

Till now, Japan has been Russia's main energy partner in the east. Tokyo has promised to invest several billions of dollars in Russia's dilapidated Far East, if Russia will build its far eastern oil pipeline to the port of Nakhodka - closer to Japan than to China.

Despite Mr Putin's backing, the pipeline's construction has been delayed, partly due to environmental concerns.

So Russia still has not made it clear who will be the beneficiary of its oil: China, Japan, or both.

As for gas supplies, Japanese firms are already pumping gas off Sakhalin - and now Rosneft, Russia's state oil company, has signed up its Chinese counterpart to follow suit.

Broken promises

Still, for China the signing of the agreements in Beijing represent a victory after many years of unfulfilled Russian promises.

Admittedly, the highly profitable - and highly volatile - state of the energy market means Russia is unwilling to put too many eggs in one basket.

Yukos oil facility in Siberia.
Japan has been Russia's main energy partner in the east

With Europe hungry for Russia's gas, Moscow would prefer not to commit too much to its eastern customers.

But in the face of its soaring energy demand, China is not standing still. Beijing is aggressively diversifying its energy resources, moving into West Africa, Venezuela and - most painfully for Moscow - the former Soviet states of Uzbekistan and Kazakhstan.


And there is little that Moscow can do about it.

Russia stopped China from purchasing 20% of Yuganskneftegas - the former oil subsidiary of beleaguered energy firm Yukos and now part of Rosneft.

Before that, Moscow blocked a Chinese attempt to take a 75% stake in Slavneft, another state-controlled energy firm.

Even so, China's acquisition of oil firm Petrokazakhstan in October 2005 showed how easily it can penetrate the region's oil market.

On top of that, Russia fears China will move in by stealth to its under-populated Far East and Siberian territories.

Supply and demand

Still, Russia retains one trump card: China's dependence on imported energy means it cannot afford to irritate such a potentially bountiful source too much.

The worst scenario for Beijing would be if - despite all the high-flown deals Mr Putin has signed - things simply keep limping on as before.

Russia will be keen to hang onto its polygamous energy export policy. In an effort to avoid throwing in its lot with just one contender, it is likely to keep trying to promise more and deliver less.

But as the game-playing continues, one thing is not going to change. The energy relationship between Moscow and Beijing is only going to gain in importance as fuel demand grows.

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