The Foreign Service Journal, December 2003

Sakhalin vs. Kovykta Neither the precise routes from Kovykta and Sakhalin, nor the capacities of the pipelines, have yet been decided. But it appears that the Sakhalin I pipeline would be no more than 1,900 miles long, running along the east coast of Korea to its terminus near Seoul, where it would intersect with an existing South Korean gas network. It could be built within three to four years between $3 billion and $3.5 billion. By contrast, assuming that the route from Kovykta crosses China’s Liaoning province to Dandong, enters North Korea at Sinuiju and proceeds along the west coast of Korea to a terminus at Inchon, the Kovykta pipleline would be nearly 3,000 miles long, take some six years to complete, and would cost some $9 billion. Compared with the huge potential of Siberia, where gas reserves are expected to last for the next century, the reserves so far discovered in the Sakhalin I concession are less spectacular, though their impact on the Russian Far East and adjacent areas of northeastern China, Korea and Japan is likely to be significant. The grand total of proven Sakhalin reserves is 915 billion cubic meters, divided almost evenly between Sakhalin I and Sakhalin II. It is likely that Sakhalin pipeline gas would be competitive with liquefied natural gas and cheaper than Kovykta gas, though how much cheaper remains to be seen. Because about $2.5 billion will be needed to develop the Kovytka fields after exploration is com- pleted, British Petroleum and its Russian partners want definite commitments from China and South Korea on how much gas they will buy before making development outlays. Most experts accept estimates indicating proven reserves in the Kovykta fields of 1.6 trillion cubic meters -- suffi- cient to provide 20 billion cubic meters of gas annually to China for 25 years, plus another 10 billion for South Korea and 10 billion to meet the growing gas needs of Irkutsk and neighboring areas of Siberia. While South Korea is ready to consume 10 billion cubic meters right away, howev- er, China may not be able to absorb its 20 billion until about 2010. Complicating negotiations further, Beijing is outraged at Russian suggestions that the Kovykta price be fixed at the same level as liquefied natural gas. Defending the Russian position, Alexander Y. Misiulin, Director of Foreign Economic Relations in the Energy Ministry, says that, “What they can pay Oman, they can pay us. After all, when it comes down to it, they are interested in cooperation with us primarily for geopolitical reasons, for diversification of their sources of supply, not only for economic reasons. Diversification should be reason enough.” Stanislav Zhiznin, Counselor for Economic Cooperation in the Foreign Ministry, notes that Siberia and the Russian Far East badly need gas for their own development, and “we have to get a high price to justify large-scale exports that undercut what they can have.” Chinese officials are more tight-lipped than their Russian counterparts but are privately threatening to increase their reliance on LNG if Moscow refuses to compromise on the price issue. They also warn that Russia’s reliability as a petroleum partner has yet to be tested, citing recent signs that Moscow may renege on a long-standing commitment by the Russian oil and gas giant Yukos to build a crude oil pipeline from Angarsk, near Irkutsk, to Chinese refineries near Daqing. Beijing has been counting on the pipeline, which would provide 20 million tons of crude oil per year by 2005 and 30 million by 2010. In the name of “national secu- rity,” President Vladimir Putin has recently signaled possible F O C U S 50 F O R E I G N S E R V I C E J O U R N A L / D E C E M B E R 2 0 0 3 Kovykta Krasnoyarsk Vilyush Khabarovsk S AKHALIN I SLAND J APAN P YONGYANG S EOUL N ORTH K OREA Changchun T OKYO C HINA R USSIA B EIJING Vladivostok Sinuiju Dandong Yakutsk Irkutsk S OUTH K OREA M ONGOLIA P ROJECTED O IL AND G AS P IPELINE N ETWORK IN N ORTHEAST A SIA K EY P LANNED P IPELINE O IL & G AS F IELDS P ROPOSED P IPELINE Lake Baikal Source: World Policy Institute