Russia has proposed a number of energy projects in the Far East that could lead to a greater presence in the important East Asian market, as well as improved ties with neighbors such as China and Japan.
The construction of the Power of Siberia main gas pipeline. Photo: RIA Novosti
Rising and falling Russian-Chinese cooperation efforts underpin the development of resources and investment in infrastructure in Russia’s Far East. A standard-bearer is the Power of Siberia pipeline, which shook the energy world when it was announced in May 2014. It was slated to export 38 billion cubic meters (bcm) of natural gas from eastern Siberia to northeast China, and 23 more bcm onward to the terminals of liquefied natural gas (LNG) in Vladivostok.
This massive project had the potential to tap new Siberian resources, fuel Chinese manufacturing, and possibly even lead to the link of Gazprom’s western and eastern resource bases, allowing unprecedented arbitrage in oil prices from Sakhalin to Europe.
Of course, things have not worked out as planners intended. While the deal was still in its infancy, China’s economy was slowing and oil prices were crashing, which has complicated the figures involved. Since then, the 23 bcm for LNG exports was cancelled, and references to the date of first deliveries (2018) have been softened to 2019 or just "on schedule".
Despite other, smaller regional cooperation announcements, such as a memorandum of understanding between Gazprom and China National Petroleum Corporation (CNPC) about constructing underground gas storage facilities and gas-fired power plants, clearly regional gas development has failed to meet the promise of early 2014.
In today’s increasingly carbon-conscious world, the slowing down of these giant fossil fuel developments might be viewed as a good thing in many circles. East Asian energy cooperation difficulties, however, affect projects of all types.
Another example, also massive in impact, scale, and difficulty, is the ”energy super ring.” This idea, sometimes referred to as the Asian Super Grid, is the latest in a long series of proposals to build a huge electricity transmission grid in northeast Asia. The latest development is the signing of a a memorandum of understanding on March 30, 2016 between China’s State Grid Corporation, Korea’s state-backed nuclear firm Kepco, Russia’s power giant Rossetti, and Japan’s Softbank Group. There are plans to integrate Mongolia as well.
Within the energy world, intermittent power issues and baseload requirements are some of the largest problems for the widespread implementation of wind and solar energy projects. Barring massive progress in electricity storage technology, wind and solar cannot handle sudden increases in demand. A grid spanning the immense distances from Japan to deep Siberia could alleviate the issue by evening out these supply and demand spikes. Over distances like these, the wind is always blowing somewhere.
Should this project gain traction, it could unlock a wave of new opportunities and investments in the relevant countries, connecting companies with new, distant markets. A recent Eastern Economic Forum in Vladivostok was attended by Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin, highlighting Japan’s interest in developing energy ties throughout the region. Japan, China and Korea were involved in many of the 200 agreements worth 1.7 trillion rubles ($26 billion) signed there, with European players represented as well.
Unfortunately, though, while the “energy super ring” does not have the demand problem of the Power of Siberia pipeline, it still faces substantial challenges. While cross-border pipelines are common around the world, an international electricity grid of this scale is maybe only comparable to that of the European Union.
In fact, some sort of greater union of legal frameworks, at the minimum, may be required in order for such a project to succeed. This is a test case, and, given the failure of previous projects such as DESERTEC, which aimed at creating a global renewable energy network in the Sahara Desert, investors have reason to be hesitant. The project must overcome questions of ownership (both of infrastructure and of the electricity), transmission regulations, standards, and confidence in both prices and the stability of the region.
Given the well-publicized disputes between Japan and China over islands in the East China Sea, and between Japan and Russia over the Kuril Islands, regional stability is definitely a factor investors must consider. Ultimately, the “energy super ring” would need an unprecedented amount of coordination between often-stubborn governments, and, unless events lead to a surge of Russian-Chinese-Japanese cooperation, this project is likely to remain on the drawing board.
Finally, one must consider the role of renewables and climate change when discussing regional energy initiatives. While most energy analysis of Russia’s Far East relates to its mineral and fossil fuel wealth, the region has renewable promise as well. Wind is ample along the coasts, southern Siberia has solar potential, and even geothermal could be implemented around Kamchatka and the aforementioned Kuril Islands. Development is obviously difficult, however, with long-distance transmission a requirement to reach substantial customer bases.
The potential of the region is still significant, particularly regarding China’s demand possibilities compared to flat European consumption. Given the above problems faced by large-scale projects, however, investors need to be cautious. So far, political tensions and underlying economic uncertainties have hampered the Power of Siberia line and precluded any regional electricity grid initiative, with only occasional signs that this will change in the near future.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.