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Gas spat has Japan and China worried over energy

"To control a nation's energy is to control the nation's activities. Russia seems to have lost some trust by making threats through a reduction of supplies."

Hiroshi Watanabe, Diawa Institute economist

As Russia wielded its energy weapon against Ukraine to devastating effect last week, China and Japan were wary observers, worrying that one day the same might happen to them, observers said.

Neither Asian power has ever felt entirely comfortable with the Kremlin, and its decision to drastically raise the price of the gas it sells to Ukraine has done nothing to boost their confidence in the Russian bear.

"To control a nation's energy is to control the nation's activities," said Hiroshi Watanabe, a Tokyo-based economist at the Daiwa Institute of Research.

"Russia seems to have lost some trust by making threats through a reduction of supplies," he said.

Unfortunately for both China and Japan, Russia has the world's largest natural gas reserves and is the second largest exporter of crude oil, making it too big an actor to be ignored in Asia's great energy game.

So the most the region's oil and gas guzzlers can do in reaction to the Russian-Ukrainian dispute is prevent over-reliance on the Kremlin.

"What you want to do is you want to continue to work with Russia, but you don't want to throw all your eggs in one basket," said David Zweig, an expert on Asian energy politics at the Hong Kong University of Science and Technology.

Nowhere is the complexity of the tripolar relationship between Moscow, Beijing and Tokyo more in evidence than in Russia's plan to build a pipeline transporting Siberian oil to the Pacific coast.

Russia announced on Friday it expected to start construction this summer of the pipeline, which will cost an estimated US$15 billion to US$16 billion and have a capacity of 78 million tonnes a year.

When complete, it will run for 4,200km from Taishet in central Siberia to Perevoznaya Bay on the Pacific coast close to Russia's southeastern border with China.

Russia appears to have left it up in the air which of the two Asian economies gets first priority on the pipeline -- perhaps, observers said, in the hope of squeezing out the best possible deal.

On a visit to Tokyo in November Russian President Vladimir Putin repeatedly stressed Japan would get access to the oil.

But two months prior to that, he reportedly told Western visitors in the Kremlin that oil shipments from the pipeline would initially go to China.

Japan had offered to pick up half of the price tag for the project and in April warned that aid would be snapped off if the pipeline first serves China.

But last week Tokyo played down the Russia-Ukraine spat.

"There is no change in our policy of proceeding with the oil pipeline construction project with Russia in the aim of securing stable energy supplies," said an official at the Agency for Natural Resources and Energy.

China is not overly intimidated by Russia's poker play, and has even gone on the offensive.

"The Chinese have some tricks up their sleeves too," said Lim Tai Wei, a Japan Foundation fellow and an observer of China's quest for energy security.

"It was able to reach an oil deal with Kazakhstan, traditionally within the Russian sphere of influence, without Russian mediation," he said.

While claiming to be unfazed by Ukraine's woes, Japan appears to face considerable potential risks as it becomes more dependent on Russia.

One concern is that Russia might try to use energy as a bargaining chip in a 60-year-old dispute over four islands which Soviet troops seized in the closing days of World War II and Japan wants back.

China, by contrast, has no major outstanding issues with Russia, and even shares with Moscow an aversion to US dominance in global affairs, but that could change.

"It would not be unreasonable to argue that Russian moves in the Ukraine gas projects have unnerved Chinese observers," said Lim. "It could do the same to the Chinese in any rapid breakdown in relations."

Many Chinese are old enough to remember the early 1960s when China and the Soviet Union suddenly and unexpectedly split.

Soviet advisors withdrew completely from China's oil industry, leaving technology, management and training in a state of flux and China to face a hostile Soviet Union and an equally hostile embargo from the US.

But this painful historical experience counts for little against the fact that China today has the world's fastest growing major economy, and probably needs Russia even more than four decades ago.

also see story:
Ukraine's gas settlement: The wrong solution

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