The Eastern Economic Forum highlights how the Kremlin is going to exploit the energy potential of the Far East to create an integrated energy system in the Pacific Rim countries. However, it is unclear if Russia will be able to satisfy their insatiable energy demands.

The logo of the Eastern Economic Forum on the territory of the Far Eastern Federal University on Russky Island, Vladivostok. Photo: RIA Novosti

With the Eastern Economic Forum starting in Vladivostok this week, one of its key sessions dealt with energy cooperation within the Asia-Pacific region. As Russia’s Energy Minister Alexander Novak argues, the Far East (and Vladivostok in particular) has a great deal of potential in terms of energy resources.

One of the region’s key advantages is Russia’s unique experience in managing a huge energy system and infrastructure throughout the entire country, Novak said during the forum.

“Energy as a driver is the basis for implementing the potential of the entire [Far Eastern] region,” he said. “This is what I call building bridges [in the Asia-Pacific].”

BP Group Chief Executive Robert Dudley echoes this view. According to him, providing people with energy is “our long-term goal” to maintain stability and security in the region. Energy plays a crucial role “globally as well as regionally,” he said during the forum.

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Since the Pacific Rim countries are extensively developing economically, they require a lot of energy. Over the last 40 years, the consumption of energy in the world doubled, with Asia-Pacific becoming one of the largest energy markets. As Novak said, by 2035 oil and gas consumption will rise by one-and-a-half and three times, respectively, in the region.

By 2025, China will remain dominant in terms of energy consumption, which is expected to increase by 50 percent in the Asia-Pacific region in general, according to Dudley. So, Russia is hitting the mark, with the Far East and Vladivostok becoming the energy link extending to the Chinese markets. But this could be possible only in a friendly environment that is able to attract investors.

Why Asia-Pacific prefers Russian energy

According to Alexey Miller, the head of Russia’s largest energy company Gazprom, the increasing dynamic in energy consumption in the Pacific Rim region led to the extremely competitive rivalry for oil and gas supplies between Europe and Asia.

And Russia’s Far East could gain some benefits from this new demand, just as Qatar did. This Arab country shifted its priorities from Europe to Asia and started exporting liquefied natural gas (LNG) to Asian markets at a stepped-up pace. In general, the number of energy deals in the region is currently outpacing the ones signed in the EU, Miller said during the Forum.

However, the fact that Middle Eastern oil has started dominating the Asian markets puzzles some stakeholders, for example, Japanese investors. Indeed, currently, Tokyo depends on the Middle East energy significantly, so it is interested in diversifying its energy suppliers. In fact, it sees energy cooperation with Russia as strategically important, as indicated by the speech of Hiroshi Meguro, the general director at Mitsui & Co Moscow, during the Forum.

He has been investing in Russia’s energy sector for at least the last 15 years. Among the projects that attracts him most is the Sakhalin-2 project, which deals with the LNG production and its transportation to the Asia-Pacific countries. During the Eastern Economic Forum, Meguro announced his company’s plans to invest in RusHydro, a Russian hydroelectricity company.

Likewise, Nobuo Tanaka, the former executive director of International Energy Agency (2007-2011), calls for greater energy cooperation with Russia. He argues the Asia-Pacific countries should be concerned with low oil prices. Even though in the short-term, cheap energy may be beneficial for consumers, in the long-run it could lead to the decrease of Russia’s oil and gas exports. That would mean Asia’s greater dependence on Middle Eastern oil.

Given the fact that the Persian Gulf region is becoming increasingly turbulent, geopolitically such a situation poses a lot of risks for the Pacific Rim countries, Tanaka warns. Russia helps to diversify the Asian energy markets, he said during the forum.

Building energy bridges

Meanwhile, amidst the growing demand for energy resources in Asia-Pacific, Russia is seeking to bolster its political clout and bring together the countries of this region under the so-called “energy super ring,” including Russia, Japan, Korea, China and Mongolia. As Russian President Vladimir Putin said during the Forum’s plenary session on Sept. 3, implementing this ambitious infrastructure project is crucial for Russia’s Far East and should be should be one of the top priorities.

Novak agrees. Building bridges means not only the implementation of specific projects, he said, but also the attempts to look for additional opportunities for expanding partnership with major energy consumers in the region as well as the understanding of the direction in which they should go.

Tanaka succinctly outlines the direction: Building energy bridges between Russia’s Far East and Asia-Pacific is crucially important. Specifically, he suggest that power companies of several Pacific countries should cooperate by connecting their grid lines together, including oil and gas pipelines as well as renewable energy facilities. Such integration could enhance energy sustainability and, thus, security. The key is that the government should play the leading role in this process.

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Most importantly, such collaboration could accelerate the implementation of the Eurasian integration project. Europe could be a good example for the Asia-Pacific region and Russia in this regard, Tanaka argues. However, it is easier said than done.

“The [Russian] government needs to be bold. Regulation of each country should be harmonized politically, technically and economically, which is not easy,” he told Russia Direct on the sidelines of the Eastern Economic Forum. “It depends on streamlining different markets. So, challenges are very high, but it is worthwhile to implement. Why not? After all, it could be a long-term project.”

According to Tanaka, Russia and Asia countries have many reasons to start such a project. And one of the most important is climate change. This challenge can drive governments to work together and implement joint initiatives to increase energy efficiency. They could also include a number of projects on renewable energy sources, taking into account the Far East’s great potential in this area.

“Russia needs Japan and vice versa because we are in the same boat,” Tanaka said.

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Shamshad Akhtar, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific, agrees, but she looks at the problem from a broader perspective: the cooperation between Russia’s Far East and Asia-Pacific should also focus on increasing energy access for the underdeveloped regions with a lack of electricity. Moreover, diversification should deal with not only markets, but also with energy sources, with renewables playing a greater role in providing people with energy. It is a matter of alleviating global warming, according to Akhtar.

It seems clear that all these initiatives require the modernization of Russia’s energy system. Such a bold challenge is impossible to overcome alone and it would be unreasonable, according to Oleg Budarin, director general of Rosseti, a Russian power company. He believes that Russia is falling behind the West in this field and needs to take into account its experience.

The major challenge is whether Russia’s power system and infrastructure are able to satisfy the insatiable energy demand of Asia’s rising economies. However, this problem could create a stimulus to develop a new energy integration system. That’s why Russia’s united domestic energy system could be expanded to the Asia-Pacific region and become even more integrated, Budarin argues.

At the same time, RusHydro general director Nikolay Shulginov has considered the problem of energy integration even further. He sees building energy bridges between Pacific powers as their participation in specific joint projects and the possibility to share energy technologies.