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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Russia's Far East - Rising Energy Superpower

Russia's Far East - Rising Energy Superpower

Siberia has traditionally conjured up images of fearsome cold and death, first as a place of exile under the Russian Tsars and later under the murderous regime of Lenin’s Bolsheviks.

A great appeal of eastern Siberia for political exile was its extreme remoteness. Originally only reachable by ship, eastern Siberia’s isolation was only somewhat alleviated by the opening of the single-track Trans-Siberian railroad in 1916. Russia’s Pacific coast city Vladivostok is closer to Tokyo and Beijing than Moscow.

Russia’s Pacific seaboard is comprised of the Primorsky Krai, informally known as Primorye, Khabarovsk Krai, Magadan Oblast and Kamchatka. The large offshore island of Sakhalin (Sakhalin oblast, Russia’s largest island) and an archipelago stretching from the southern tip of the Kamchatka peninsula, the Kuriles, complete the Russian Federation’s Pacific possessions.

But now, instead of being a place of exile, the region is becoming eastern Russia’s hydrocarbon powerhouse. Gazprom has conducted a feasibility study to construct a liquefied natural gas (LNG) plant near Vladivostok (“possessor of the east”), Primorye’s administrative capital, in the first quarter of 2013, capable of producing at least 10 million tons of LNG per year..

Why would Gazprom site an LNG facility there?

To export the region’s booming natural gas exports to the lucrative Chinese, Japanese and South Korean markets. Farther south, Association of Southeast Asian Nations (ASEAN) members Brunei, Vietnam, Indonesia, Cambodia, Laos, Malaysia, Myanmar, Thailand, the Philippines, Singapore and observer member Timor Leste in 2010 consumed 143.7 billion cubic meters (bcm) of natural gas, accounting for 24 percent of global LNG exports.

And the future seems assured. Sakhalin’s hydrocarbon deposits are estimated to contain 14 billion barrels of oil and 2.7 trillion cubic meters of natural gas.

Nor is the home market neglected – last September Gazprom inaugurated its GTS Sakhalin - Khabarovsk - Vladivostok 6 billion cubic meters of gas per year pipeline system to start natural gas deliveries in Primorye.

Underlining the importance of the occasion, Russian Prime Minister Vladimir Putin, Presidential Plenipotentiary in the Far East Federal District Viktor Ishayev, Gazprom Chairman of the Board Aleksei Miller and Primorye Governor Sergei Darkin attended the GTS opening. The initial GTS throughput will come from the from the Sakhalin-1and Sakhalin-2 projects and Gazprom hopes to expand the pipeline’s throughput capacity to 30 bcm by 2020. Gazprom has further development plans for its northwestern Pacific projects, with Miller stating that later this year Gazprom will begin construction of another massive natural gas pipeline to deliver throughput from Yakutia’s Chaiandinskoe field, linking up with the Sakhalin-Vladivostok segment near Khabarovsk to create a pipeline network eventually capable of shifting 60 bcm of natural gas a year.

Nor are hydrocarbons the only energy exports transiting the Russian Far East.

Techsnabexport (TENEX) and Korea Hydro and Nuclear Power Co, the monopoly operator for South Korea's nuclear power plants have agreed to use the Vostok transport and logistics complex, to be built in Russia's Far East, for enriched uranium product supplies instead of shipping nuclear material via St. Petersburg.

TENEX, which last year earned $126 million from uranium exports to South Korea, is a subsidiary of Atomenergoprom, which is in turn part of the State Nuclear Energy Company Rosatom. The Asia Pacific region now accounts for over 20 percent of Russian uranium product exports and the Vostok complex will reduce the time it takes to transport uranium products to countries in the Asia Pacific region by 50-60 percent compared to the current route.

But there are some clouds over this otherwise sunny picture – Russia’s populous, energy starved neighbors. Less than seven million Russians live in the vast territory, and Russian foreign policy has not mollified all of them. The Soviet Union’s seizure of the southern Kurile islands in late 1945 from Japan still rankles Tokyo, while Beijing remembers the vast swathes of territory ceded to the Russian empire in the mid-nineteenth century under what even present-day Chinese textbooks term “the unequal treaties.”

Not that either country seems to be contemplating conflict to regain what they lost, but Russian xenophobia peers across the border at Asia’s teeming billions.

So, what to do with Russia’s inscrutable oriental energy customers?

Beef up Russia’s Far Eastern military forces. Russia's Sberbank, the largest bank in Russia and Eastern Europe is considering funding $1.18 billion in shipyard construction in Russia's Far East for the production of warships.


Even worse are Moscow’s fears that its Far Eastern citizens, long chafing under Moscow’s indifference and exploitation, might harbor secessionist sentiments while foreigners invade. Four days before the presidential election in Russia earlier this month, privately owned Russian television channel REN TV warned viewers that the country would face disintegration and total chaos without the leadership of one of the presidential candidates, incumbent Prime Minister Vladimir Putin. Spinning out a series of scenarios of Russia without Putin’s firm grasp, under a “March 2013” screen caption the clip intoned, “Following a famished winter, local nationalists win regional elections. Primorye, Kaliningrad, Tatarstan, Bashkiria and Yakutia announce their secession from Russia.” Just three months later, “Under the pretext of protecting civilians, a limited contingent of NATO troops enters Kaliningrad. China sets up its administration in Irkutsk, Chita, Blagoveshchensk and Khabarovsk. The Japanese peacekeeping contingent disembarks in Vladivostok.”

At least, under Putin’s steady hand such nightmare scenarios will be forestalled – and the profits from the Far Eastern region’s hydrocarbon riches will continue to flow to Moscow.

For now, anyway.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • Rob Berke on April 02 2012 said:
    Doesn't Russia currently export LNG from Sakhalin to Asia with a system innaugerated more than a year ago?
  • Beena on June 21 2012 said:
    This is common place for Igor's doesinatitn in his bad Russian truck.I wonder if anyone on here remembers me from my old posts. Sorry I haven't posted for a while, I was stuck in middle of Siberia for months in my nuclear waste truck living off vodka to keep warm during our cold summer

Leave a comment

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