Northeast Asia's Kovykta Conundrum

Northeast Asia’s Kovykta Conundrum:
A Decade of Promise and Peril
Se Hyun Ahn & Michael T. Jones
research note
• http://asiapolicy.nbr.org •
keywords: northeast asia; natural resources; natural gas; oil;
pipelines; energy policy; russia; kovykta
se hyun ahn is Assistant Professor at the Government and International
Relations Programme in the Division of Humanities and Social Science in the
United International College, Zhuhai, China. He was previously a research
fellow at the Asia Research Centre at the London School of Economics and
Political Science. He can be reached at <ahns131@gmail.com>.
michael t. jones is a project manager at The National Bureau of Asian
Research.HehasadegreeinChineselanguageandliteraturefromtheUniversity
of Washington. His primary areas of research include energy security, politics of
economic development, and Asia’s relations with the developing world. He can
be reached at <mjones@nbr.org>.
note u The authors would like to thank Mikkal Herberg and two
anonymous reviewers for helpful insights.
asia policy, number 5 (january 2008), 105–40

asia policy
executive summary
This article seeks to explain why—despite the potential for gas from Siberia
and the Russian Far East to provide greater energy security for Northeast
Asia—a decade of negotiations has still not resulted in an agreement to
construct the Kovykta pipeline.
main argument
Gas from Russia’s Kovykta field has the potential not only to drastically
reduce Northeast Asia’s energy shortage but also to help diversify Northeast
Asia’s traditional sources of energy away from the Middle East.
The potential for Kovykta gas to reach any Northeast Asian country, however,
has been delayed for over ten years due to the following factors:
• The politics of route determination u Though routing the pipeline via
North Korea and Mongolia would be cheaper, government and private
sector sensitivities have resulted in proposed routes that circumvent the
two countries and thus drive up the costs of any such pipeline.
• Inherent complexities of gas investments u Natural gas is intrinsically more
difficult to trade than oil, and gas deals require much more confidence,
guarantees, and money from investors and governments.
• Demand security u China’s market is important to Kovykta’s success.
Despite plans for further gas market development, however, China’s
reliance on cheap coal has created a soft market for higher-priced gas.
• Russia’s resource nationalism u Rising oil prices have given Moscow
impetus to renationalize Russia’s energy sector, thereby both complicating
negotiations and causing investors to be wary of a Russia that could use
energy as a political weapon.
policy implications
Though a more centralized role for Russia in the Kovykta project could speed
the decisionmaking process, striking a price that suits both China and Russia
will be the key determinant in the fate of the pipeline. Gazprom is currently
focused on other projects, however, and Kovykta will possibly remain
idle for several years to come. Not allowing Russia’s giant gas field to have
significant market outlets in Asia will keep gas prices higher than they would
be otherwise, potentially diminish available supplies to the U.S. West Coast,
and keep incentives in place for Asia to increase ties to “rogue” gas-supplier
states such as Iran and Myanmar.

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ahn & jones • northeast asia’s kovykta conundrum
Energy security is gradually replacing the previous ideological
confrontation that was characteristic of the Cold War to form a new
security paradigm in the Asia-Pacific. Maintaining strong relations with
Russia is extremely advantageous to regional states given that the import
of oil and gas from Russia’s Far East has the potential to enhance Northeast
Asia’s energy security interests by reducing domestic energy shortages and
diversifying energy imports. Since the end of the Cold War, Russia has often
been portrayed in Asia as a waning political and economic force. Since the
dissolution of the Soviet Union, however, Russia has sought to become a
pivotal regional player in Asia. Russian president Vladimir Putin clearly
hopes to upgrade Russia’s prestige and influence in the region by promoting
his country’s role both as an objective mediator and as a reliable energy
supplier. In the last several years in particular Russia has demonstrated power
and influence in the new geopolitical environment of high energy prices.
With enormous oil and gas reserves in Siberia and the Far East, Russia has an
economic interest in expanding the country’s energy markets into the Asia-
Pacific region.
Despite this great potential, the reality is that Russian energy projects
have not emerged as a substantial functioning unit of economic activity thus
far. The many efforts in the last ten years by Northeast Asian states—notably
China, South Korea, and Japan—to exploit opportunities in Russia’s Far East
have had only marginal success. Gazprom is now in the midst of taking over
controlling stakes in Russia’s remaining foreign-owned energy projects. In
mid-June of 2007 Gazprom took a majority share of the Kovykta gas field
project by forcing TNK-BP out of the consortium. For ten years this gas
field, located in Russia’s Irkutsk region, has promised to be a keystone for
physically connecting the nations of Northeast Asia in a way that no other
energy project could. Though governments of China, Mongolia, South Korea,
North Korea, and Japan have actively discussed Kovykta’s development
over the last decade, the development of gas pipelines from Russia has been
extremely slow. Several factors have impeded progress, including China’s
underdeveloped and unpredictable gas market, issues related to regional
distrust, political and commercial risks regarding pipeline routing options,
the Asian financial crisis in the late 1990s, and Russia’s renationalization of the
energy sector. Gazprom’s focus on westward exports and lack of technological
expertise could seriously impair Russia’s prospects for a greater share of Asian
gas exports. As such, many consumer countries in Northeast Asia have held
off on dealing with Russia and are beginning to turn elsewhere to fulfill future

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gas needs. With little development having ensued since Gazprom’s takeover of
the Kovykta project, the fate of this venture is uncertain.
This article uses the case study of the Kovykta gas pipelines proposed in
the region to illustrate both the potential for and the major obstacles to Russia
becoming a major provider of energy security for Northeast Asia.
This article is divided into five sections:
u pp. 108–14 examine both the current state of natural gas development in
South Korea and China and the overall benefits of potential Kovykta gas
exports to the two countries
u pp. 114–21 outline Kovykta’s changing development and export plans
over the last ten years
u pp. 121–29 analyze the major economic obstacles to the development
and export of Kovykta gas to Northeast Asia
u pp. 129–37 examine Russia’s resource renationalization and other
domestic factors that have impinged on the export of Kovykta gas to
Northeast Asia
u pp. 137–40 consider the future outlook for Kovykta gas introduction
into Northeast Asia and the geopolitical and economic implications for
Asia and the United States
the potential benefits of
kovykta gas development
Russia’s Untapped Potential
Russia has been described as the world’s “treasure trove” of gas. Around
twenty new giant gas fields have been discovered in the last couple of decades,
each containing over 500 billion cubic meters (bcm). These twenty fields
comprise close to three-quarters of Russia’s total gas reserves. Capable of
producing as much as 130 bcm of natural gas by 2020—equivalent to the
current level of Russia’s gas exports to Europe—the Russian Far East can play
a very important role in shaping cooperative energy schemes in Northeast
Asia.1
In the last ten years Northeast Asian governments and companies have
made several attempts to capitalize on a number of major energy projects in
the Russian Far East.
1 See Stephen White, “Is Russia a Country in the Globalization Era?” (presentation prepared
for conference on the Regional Cooperation of Northeast Asia and Russia’s Globalization
for the 21st Century, Seoul, South Korea, June 22–24, 2003); and Eugene M. Khartukov,
“Russia,” in Rethinking Energy Security in East Asia, ed. Paul B. Stares (Tokyo: Japan Center for
International Exchange, 2000), 141.

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One of Russia’s largest gas fields is the Kovyktinskoye (Kovykta) gas
condensate field. Discovered in 1987, this field contains an estimated two
trillion cubic meters of natural gas and condensate.2
Put into perspective,
Kovykta contains more gas than the entire nation of Canada, the major
supplier of gas to the United States. Due to the sheer size and location of the
field, Kovykta’s development represents a timely and important opportunity
for China and South Korea. Development of this field as last proposed by
the consortium—with 20 bcm per year going to China and 10 bcm per year
going to South Korea—could hold many benefits for Russia. Development
at this level could facilitate diversification of Russia’s Europe-centric export
market, increase government revenues, spur economic development in the
desolate regions of the Russian Far East and Siberia, and promote regional
energy integration.
With Gazprom’s recent takeover of the project (discussed in detail below),
pipeline development into Northeast Asia could—if planned carefully—
represent a significant opportunity for Russia. The projected $1.2–1.4 billion
per year in annual tax revenues from the export of Kovykta gas by 2020 would
benefit both the federal and local governments.3
In 2006 gas rents accounted
for approximately half of Russia’s total energy rents. Furthermore, Gazprom
currently exports all of Russia’s gas to Europe and Eurasia; a major pipeline
to Northeast Asia could therefore diversify the company’s export portfolio.
In 2006 Gazprom produced 556 bcm of gas and exported around 260
bcm—approximately half the total—to Europe, the Baltic States, and Central
Asia.4
Thus, potential Kovykta gas exports of around 30 bcm per year would
represent over 10% of Gazprom’s current exports.
As of early 2007, however, domestic consumption of gas supplied from
the Kovykta field amounted to only 2 bcm. The main consumers of this initial
production have been the sparse populations of Angarsk, Sayansk, Irkutsk,
and Usolye-Sibirsk.5
These populations will never consume as much gas as this
field could potentially produce. For the benefit of both the project consortium
and the Russian state, Kovykta gas must reach Asian markets.
2 “Kovykta Project,” TNK-BP u http://www.tnk-bp.com/operations/exploration-production/
projects/kovykta/.
3 Ibid.
4 “Gazprom Annual Report 2006,” OAO Gazprom, 2006 u http://www.gazprom.com/documents/
Report_Eng.pdf.
5 Ibid.

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South Korea’s Looming LNG Supply Gap
In the last few decades, South Korea has been one of Asia’s fastest-growing
and most dynamic economies. Vast amounts of natural resources will be
needed to maintain this economic growth. Due to the expansion of energy-
intensive industries and to increases both in income and in the number of
motor vehicles, total primary energy demand in South Korea has skyrocketed
to 226 million tons of oil equivalent (mtoe) in 2005, approximately 78 mtoe
higher than in 1995.6
Having very limited domestic sources of energy, South
Korea relies almost completely on imports. Energy imports as a percentage of
total demand rose from 73.5% in 1980 to 96.8% in 2005. The world’s fourth
largest oil consumer, South Korea presently relies solely on imports to meet oil
needs and uses oil as the primary fuel source; demand for oil as a percentage
of total energy demand is, however, projected to fall from 53% in 2003 to 39%
by 2030.7
In the mid-1980s Seoul introduced tax incentives to promote widespread
use of natural gas. With the rapid expansion of the country’s natural gas
industry from 1987 to 2002 and establishment of a nationwide trunk pipeline
network, South Korea has become one of the world’s most dynamic gas
markets. Natural gas continues to be the fastest-growing energy resource in
SouthKoreaduebothtotheconvenienceandtotheenvironmentalfriendliness
of natural gas relative to oil. As such, forecasts are that South Korea’s demand
for gas will increase by 150% (from 20 bcm in 2000 to 53 bcm) by 2020.8
In
short, natural gas has been and will remain the fastest-growing energy source
in South Korea.
South Korea is currently the second-largest importer of liquefied natural
gas (LNG) and home to the world’s largest LNG importer, Korean Gas
Corporation (KOGAS). KOGAS has a de facto monopoly on South Korean gas
imports, which thus far have been exclusively in the form of LNG.9
KOGAS’s
imports have traditionally come from Southeast Asia; many of these long-
term KOGAS contracts are ending in 2007–08, however, and their renewal
6 “BP Statistical Review of World Energy 2006,” BP p.l.c., June 2006.
7 Ministry of Commerce, Energy, and Industry of the Republic of Korea (MOCIE) u http://www.
mocie.go.kr.
8 Ibid.
9 Due to privatization efforts that began in 1999, the South Korean government allowed POSCO
(a large steel maker) to make a rare “spot” purchase of 500,000 tones of LNG in 2006. POSCO
and K-Power also signed a long-term LNG contract in 2004 for 550,000 and 600,000 million tons
respectively of LNG from Indonesia’s Tangguh project that will be delivered by the end of 2008.

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is not always certain.10
Therefore a growing proportion of South Korea’s LNG
is coming from the Middle East. South Korea began importing LNG from
Oman and Qatar in 1999 and has secured a contract for large shipments from
Yemen beginning in 2008. By 2020 nearly 80% of South Korea’s LNG imports
will come from the Middle East (see Figure 1). Imports of LNG to South
Korea will increasingly need to traverse long distances through vulnerable
chokepoints such as the Hormuz and Malacca straits. Furthermore, the
Middle East is facing a shortage in liquefaction capacity, traditional LNG
suppliers (Yemen, Oman, and the United Arab Emirates) all have virtually run
out of new supplies, and approximately 80% of the potential LNG supplies of
Qatar—just emerging as one of the world’s largest LNG exporters—are already
committed.11
For South Korea, these phenomena make neighboring Russia an
extremely attractive source of gas.
Since KOGAS is the main LNG importer, South Korea’s economy is
dependent on winning new long-term LNG contracts. Although KOGAS’s
contracted supplies roughly matched total gas demand in 2001, the supply-
demand gap has recently noticeably widened due to South Korea’s seasonal
demand fluctuations (see Figure 2). South Korea consumes around eleven
times as much LNG in the winter as in the summer. Given that traditionally
strict LNG contracts forbid customers to sell excessive supplies to third parties,
South Korea has in effect been forced to buy contracted gas below demand
and to make up the difference with spot-market cargoes.12
South Korea’s 2005
spot-market purchases came to around 8 mtoe of gas—or approximately 9
bcm—an amount the equivalent to about one-third of the country’s total
gas consumption (see Figure 2). Reliance on the spot market to make up for
gas shortfalls is a major problem for Korea. Although purchases on the spot
market have become increasingly commonplace in the Asia-Pacific, spot
market LNG is vastly more expensive than gas obtained through long-term
10 Indonesia is one such example. Although much of South Korea’s LNG in the 1990s came from
Indonesia, the future of Indonesia’s LNG industry is uncertain. Due to a lack of both favorable
investment policies and general resource nationalism, this OPEC country became a net importer
of oil in 2004, with plans to further develop the country’s LNG for export currently in limbo.
An overall push to develop a domestic gas market is emerging to make up for this energy gap.
Indonesia already has to import LNG from other countries in order to meet existing long-term
supply contracts.
11 Fereidun Fesharaki, “Energy Issues in Iran: It Helps to Know a Few Facts Before Reaching
Conclusions!” (presentation given at the 27th Annual Oil & Money Conference, London,
September 18–19, 2006).
12 Spot markets allow producers of surplus gas to instantly locate available buyers, negotiate prices,
and deliver actual commodities to the customer in real time and are either privately operated or
controlled by industry organizations or government agencies. Spot markets frequently attract
speculators because spot market prices are known to the public instantaneously.

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contracts, including pipeline gas.13
Kovykta could be a source of both stable
and predictably priced gas for South Korea.
As mentioned above, South Korea is solely reliant on LNG. The proposed
Kovykta pipeline would therefore allow Seoul to diversify not only the sources
of gas but also the modes of gas transportation available to South Korea.
For Seoul, the Kovykta pipeline is extremely attractive as such a line could
disperse risk among the multiple parties involved (both government and
private)—rather than bilaterally as is the case with LNG deals—and balance
South Korea’s reliance on tanker gas coming from the Middle East.
China’s Promise as a Gas Market
Natural gas currently comprises only 3% of China’s total energy
consumption mix, a percentage that is significantly less than the world
13 The growth of the spot market in Asia is in part due to South Korea’s seasonal gas demand swings, a
nuclear plant shutdown in Japan, and gas supply interruptions in Indonesia.
figure 1
Share of South Korea’s LNG Imports by Source, 1990–2020
Percentage
Year
Source: “KOGAS 2005 Annual Report,” Korea Gas Corporation, 2006 u www.kogas.or.kr.
Southeast Asia Middle East Other
1990 1995 2000 2005 2010 2015 2020
0
10
20
30
40
50
60
70
80
90
100

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average of approximately 23%.14
The lack of gas demand is predominately
due to China’s reliance on coal for electricity. Accounting for 70% of total
energy consumption in China, coal is slated to remain “king” in China’s
energy mix for the next several decades. Beijing is, however, beginning to
realize the limitations of coal for providing a stable supply of electricity in
China. Rampant electricity demand has placed serious stress on China’s rail
transportation system and has created major transportation bottlenecks that
triggered a rise in coal spot prices and caused severe power outages in many
parts of the country. Faced with these coal shortages, many manufacturers
have resorted to using gas- and diesel-powered generators to meet factory
electricity needs, a substitution that in turn raises China’s overall oil demand.
The grave environmental and health implications of China’s coal use
have received extensive media coverage. The International Energy Agency
(IEA) predicts that China will overtake the United States in carbon dioxide
14 “BP Statistical Review of World Energy 2006.”
1990 1995 2000 2005 2010 2015 2020
0
5
10
15
20
25
30
35
40
45
50
figure 2
South Korea’s Growing Gas Supply-Demand GapMilliontonsofoilequivalent
Year
Source: “Outlook for Energy Consumption in 2010,” MOCIE u www.mocie.go.kr; “BP Statistical Review of
World Energy 2007,” BP p.l.c., 2007; and “KOGAS 2005 Annual Report.”
Note: Data for 2010, 2015, and 2020 is projected.
Demand
Supply gap
Supply contracts

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emissions in 2008.15
Additionally, the coal industry in China sorely lacks safety
standards. In 2005 nearly 6,000 deaths in coalmine accidents were reported
in China. According to Zhao Tiechui, chief of China's State Administration of
Coal Mine Safety, China closed a total of 8,984 small coalmines in the first half
2007 and will close another 2,811 small coalmines by the end of the year.16
China’s coal industry will require around $100 billion in further
investments to meet projected demand in 2025.17
Rather than making these
neededinvestmentsinthecoalindustry,Chinacoulddirectinvestmenttoward
establishment of an integrated gas system. With 70% of China’s economy
relying on the coal industry, prospects for diversified gas introduction will
remain a top priority for Beijing. Investments in efficient and clean gas-fired
power stations would play a critical role in alleviating many of China’s coal-
related environmental and health problems.
Domestic gas production has risen dramatically, up 17% between 2005
and 2006. Despite this change, China must increasingly look abroad for
supplemental gas supplies. Until recently China was completely self-reliant
on domestically produced gas. Because China’s national gas network is not
even remotely comparable to that of South Korea or Japan, the country’s
domestically produced gas is consumed in close proximity to the production
fields. No consensus has emerged among analysts over the shape Chinese
gas demand will take in the next twenty years (see Figure 3). As economic
development and manufacturing further stretch into China’s hinterland,
Beijing will need to build gas pipeline networks and effectively implement
policiesforpromotingpipelineuse.AsthemajorityofChina’sgasconsumption
and pipelines (though sparse) are in the country’s northeastern region, Russia
is an extremely attractive gas supplier—and Kovykta gas is optimally located
for transport to China.
the fight for kovykta
In 1989 Chung Ju-Yung, chairman of the Hyundai Group, proposed
running a gas pipeline from Yakutsk to South Korea via North Korea. He
hoped that this project could both enhance South Korea’s energy security
15 Richard McGregor, “Rampant Growth Spurs Emissions,” Financial Times, April 19, 2007.
16 “China to Stay Coal Net Exporter through 2007,” Energy Economist, no. 310 (August 2007): 38.
17 James P. Dorian, “Global Implications of Rising Chinese Energy Demand” (paper presented at
annual energy security conference of The National Bureau of Asian Research, Washington, D.C.,
September 25–26, 2005).

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and advance the idea of a unified Korea.18
In 1994 the presidents of South
Korea and Russia agreed to jointly develop natural gas from a field in Yakutia
(Republic of Sakha) in eastern Siberia to supply gas through a pipeline to
Seoul. South Korean president Kim Yong-sam stated that this pipeline would
“promot[e] the economies of the two countries…[and] contribute to forming
a basis for unification of the two Koreas.”19
In late 1995 Moscow and Seoul
completed a preliminary study of the technical and economic feasibility of
Sakha gas development. Under the agreement a 6,600 km (4,125 mile) natural
gas pipeline would extend from Sakha through Khabarovski and Primorski
krais. Expectations were that the annual output of gas would total 30 to 45
18 Keun-wook Paik, Gas and Oil in Northeast Asia: Policies, Projects, and Prospects (London: The
Royal Institute of International Affairs, 1995).
19 “Russia and South Korea Agree to Develop a Gas Field and Construct a Pipeline,” BBC Monitoring
Service: Asia Pacific, June 3, 1994.
figure 3
Projections of China’s Gas DemandBillioncubicmeters
Year
Source: “BP Statistical Review of World Energy 2007”; “2006 Energy Demand and Supply Outlook,” Asia-
Pacific Energy Research Center (APERC), 2006; “2004 World Energy Outlook,” International Energy Agency
(IEA), 2004; and “2006 International Energy Outlook,” Energy Information Administration (EIA), 2006.
National Development and Reform Commission (NDRC) figure cited in Akira Miyamoto and Chikako
Ishiguro, “Pricing and Demand for LNG in China: Consistency between LNG and Pipeline Gas in a Fast
Growing Market,” Oxford Institute for Energy Studies, NG-9, January 2006.
Note: Actual figure in 2006 is 56 bcm.
2006 2020
0
50
100
150
200
250
300
APERC (153)
EIA (134)
IEA (107)
NDRC (250)

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bcm, 15 to 28 bcm of which would be exported to the Korean Peninsula and
that the project would be shared between Russia (70%) and foreign investors
(30%). Pyongyang approved the transit of the gas pipeline through North
Korean territory because the project would be economically beneficial to the
country. Estimates for the total cost of the project were between $17 and $23
billion, with supplies expected to last fifty years.20
The regional pipeline idea
was abandoned, however, because the fields in Sakha Republic were deemed
unprofitable due not only to the huge costs associated with a pipeline of
this length and the harsh climate and geological conditions but also to the
uncertainty of future South Korean demand for gas. International focus thus
quickly turned to the Kovykta gas field in Irkutsk.
The Five-Country Feasibility Study (1996–2000)
Following the discovery of the gas field in 1987 and several short-lived
attempts by Western oil companies to take part in Kovykta’s development,
Russia’s prime minister ordered that Sidanco—a newly formed regional oil
companyownedjointlybyRussiaPetroleum(RP)andtheExport-ImportBank
of Russia—should become the major Russian stakeholder in the project. In
1996 a subsidiary of South Korea’s Hanbo Group, the East Asia Gas Company
(EAGC), took the initiative of purchasing 27.5% of the equity shares in the
project for $25 million and promoting early development of East Siberia’s
oil and gas reserves. 21
As a result the Hanbo group (with 46.1% ownership)
became the largest shareholder of the project. Having invested $40 million
in the field development, the consortium began looking for supplemental
foreign investment by 1997. That year Russia’s Ministry of Fuel and Energy
and China National Petroleum Corporation (CNPC) signed an agreement to
bring Kovykta gas to northeast China via Mongolia. At that time total project
costs were expected to amount to $5–7 billion.22
South Korea’s stake in the project was short-lived; in 1997 a bankrupted
Hanbo Group was forced to sell off a majority of its equity shares. British
Petroleum’s $571 million purchase of the bulk of Hanbo shares left EAGC with
just a 7.5% share. Sidanko and BP established a strategic alliance to develop
the project.23
Projections at this time for the proposed pipeline put delivery
20 Ekonomicheskii Soyuz Supplement, Rossiskaya gazeta, March 30, 1996.
21 Unless noted otherwise, all monetary values are in U.S. dollars.
22 “Russia and China to Build Gas Pipeline to Yellow Sea,” BBC Monitoring Service: Former Soviet
Union, July 18, 1997.
23 Jeanne Whalen, “BP and Uneximbank Close Sidanko Deal,” Moscow Times, November 19, 1997.

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of Kovykta gas to China at 20 bcm per year, with the possibility of extending
pipelines to service Korean and Japanese markets. In 1998 Russia, Japan,
China, South Korea, and Mongolia signed a memorandum of understanding
to execute a feasibility study.24
During this phase of negotiations the pipeline
route deemed most economical was one running from Irkutsk to Beijing via
Ulaanbaatar, Mongolia—a total distance of 3,364 km.The planned 1,420 mm-
diameter pipeline would require capital investments of nearly $7 billion.25
Several issues began surfacing at this time. Although the proposed route
was the most economical, China was staunchly opposed to Mongolia as a
transit country. Additionally, although China was the main market for the gas
a large portion of the investments would need to come from South Korea and
Japan. Under these prerequisites, companies from the two countries would
need to be rewarded with larger stakes in the pipeline development. Project
plans collapsed at a December 1998 meeting. In 1999 the development of the
pipeline was revived by a cooperation agreement signed in February 1999
between the prime ministers of Russia and China, Yevgeniy Primakov and
Zhu Rongji.26
By the end of 1999 China and Russia had invited South Korea
to join in another feasibility study that began in early 2000. The remainder of
that year was defined by BP taking further control of RP with the acquisition
of EAGC’s remaining shares.
The Three-Country Feasibility Study (2000–03)
During a November 2000 meeting in Beijing, the BP-controlled RP
signed a new tripartite agreement with CNPC and KOGAS for a feasibility
study.27
Shortly after the agreement, South Korea proposed that the study
include the potential for North Korean participation in the project. South
Korean energy experts and politicians emphasized that by giving Northeast
Asia a truly integrated pipeline system the North Korean routing option
would both minimize the unstable political situation in the Korean peninsula
and promote mutual economic prosperity for each participating state.
In 2002, before the feasibility findings were even announced, Tyumen
Oil Company (TNK)—a significant shareholder (26%) of RP—proposed the
24 “E. Siberia Gas Feasibility Study to Be Agreed,” Reuters, September 23, 2006.
25 Keun-Wook Paik and Jae-Yong Choi, “Pipeline Gas Trade between Asian Russia, Northeast Asia
Gets Fresh Look,” Oil and Gas Journal 95, no. 33 (August 18, 1997): 41–45.
26 “Russian Agency Details Sino-Russian Energy Cooperation Projects,” BBC Monitoring: Asia-
Pacific, February 24, 1999.
27 “Russia,” Platts Oilgram News 78, no. 215, November 7, 2000.

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idea of completely bypassing China by directing the pipeline to Nakhodka
for LNG exportation.28
A year of shuttle diplomacy and wrangling between
stakeholders, local and federal governments, and Russian gas giant Gazprom
ensued, due in large part to Moscow’s 2002 appointment of Gazprom—not
even a stakeholder—as the main coordinator for all gas exploration and
production (E&P) and export projects in east Siberia. Moscow specifically
asked Gazprom to coordinate all of Russia’s gas sales to the Asian markets,
as the company does with European exports.29
In February 2003 Gazprom
chief Alexei Miller visited Seoul to discuss KOGAS’s proposal to build
the Kovykta pipeline into China through North Korea, finally reaching
Pyongtaek in South Korea. TNK and BP (which had merged in 2003 giving
the new company TNK-BP a 62.5% stake in RP) strongly opposed the route
through North Korea, however, because of the increased costs and potential
political risks. South Korea eventually abandoned the idea and returned to
the original plan to lay the pipeline on the bottom of the sea between China
and South Korea (see Figure 4).
Thethree-countryfeasibilitystudywaseventuallyconductedandfinalized
in the summer of 2003. The study found that the project was commercially
sound and projected that the total production volume of gas from the Kovykta
field would reach 30–35 bcm per year, of which China would receive 20 bcm
per year and South Korea would receive 10 bcm per year. The proposed gas
pipeline would have a total length of 4,887 km, starting from Irkutsk, wrapping
around the southern tip of Lake Baikal, running parallel with the Mongolian
boarder, and crossing the Russia-China boarder at Manzhouli (Manchuria).
In China the pipeline would run through Qiqiha’er, Harbin, Changchun, and
Shenyang. From Shenyang the pipeline would split—one line going to Beijing
and the other line going to Dalian. From Dalian a pipeline would run 536 km
under the Yellow Sea to the Korean city of Pyongtaek.30
The study also found
that the pipeline would take five to six years to build and could ultimately
supply South Korea with gas beginning in 2009–10. The study projected that
the project costs would reach $17 billion. According to KOGAS, the price
28 “Russian TNK Urges OK for Kovykta-Nakhodka Gas Pipeline,” Dow Jones International News,
March 15, 2002.
29 “Gas Pipeline to China and Korea,” APS Downstream Review Trends, September 4, 2006.
30 Jiqiang Ma, “Substantial Result Achieved for Russia-China-ROK Gas Cooperation Project,” China
Oil and Gas, no. 4 (2003): 42–45.

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of Kovykta pipeline gas would have been 20% to 30% lower than Korea’s
established LNG prices.31
Gazprom’s Strong-arm (2004–Present)
Before the three parties were able to sign an intergovernmental
agreement, however, Gazprom declared that it would support neither the
proposal nor the export of Kovykta gas to international markets, arguing that
the gas should be sold on Russia’s domestic market.32
During a January 2004
meeting with TNK Chairman Viktor Vekselberg, Gazprom Chairman Alexei
Miller declared that Gazprom would not permit the field to be developed
outside Gazprom’s control and insisted that the priority should be Russia’s
31 Chang Duckjoon, “Northeast Asia Energy Cooperation and the Russia Far East,” Korea Focus,
May–June 2004 u http://www.koreafocus.or.kr/essays/view.asp?volume_id=34&content_id=8&
category=G.
32 “Gazprom Says Kovykta Project ‘Unattractive’ in Current Version,” Prime-TASS Energy Service,
January 29, 2004.
figure 4
Kovykta’s Proposed Pipelines
Source: K. Kanekio, “Northeast Asia Natural Gas Trade Study: Developing Stable Supply of Cleaner Energy
for Sustainable Development” (presented at the World Bank workshop, Beijing, June 24, 2004).
Nakhodka
Khabarovsk
Skovorodino
Dalian
Changchun
Harbin
Daqing
Manzhouli
Irkutsk
Kovykta Gas Field
Chayandinskoye
Gas-Oil Field
Beijing
Ulaanbaatar
Pyongtaek

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asia policy
domestic market, noting that “supplying gas to Russian consumers must be
a priority in development of East Siberia. This principle is not reflected in the
feasibility study. Nor are the costs of gasifying regions around the field taken
into account or the potential for developing petrochemical projects using
resources from Irkutsk fields.”33
Two months later, Gazprom even suggested
that Kovykta gas be linked to the unified system of gas supply to be diverted
toward European markets.34
Alexander Medvedev, deputy chairman of
Gazprom stated: “we told [TNK-BP] that we could consider Kovykta as a part
of the export base, but in no way we would discuss supplies from Kovykta to
China. That makes no economic sense.”35
Gazprom clearly desired an equity stake in the project, larger than the
11% share that Irkutsk State Property Committee had offered. As holder of
the largest stake in the project, TNK-BP quickly became Gazprom’s target.
Although realizing early on the need to effectively work with Gazprom, TNK-
BP sought to bring Gazprom in only if on fair commercial grounds.
Working through the Ministry of Natural Resources, Gazprom
soon brought to the limelight some of the details in TNK-BP’s license
agreement and the possible consequences for TNK-BP of not meeting the
contract terms. Under this agreement, TNK-BP was required to produce
a minimum of 9 bcm per year from the Kovykta field by 2006 or risk
losing the project. In a last-minute effort TNK-BP built a small pipeline
from the Kovykta field to Zhigalovo, a logging village with only 5,000
residents. TNK-BP sold the gas for $30 per thousand cubic meters, well
below market prices; Gazprom sells gas to Europe at an average price of
$250 per thousand cubic meters.36
When TNK-BP’s deadline closed in June 2007, Gazprom agreed to
make a nominal payment of $700–900 million to TNK-BP and “promised”
shares in other projects in Russia in return for TNK-BP’s 62% stake in
Kovykta. Although not yet having made public its official export plans,
Gazprom officially stated that China and South Korea are regrouping on
gas talks.
AlthoughsomeanalystsbelievethattakeoveroftheprojectbyGazprom
could actually expedite the development of an export route (whether
33 “Gazprom Outlines Disagreements with TNK-BP over Kovykta Project,” Platts Commodity News,
January 29, 2004.
34 Nodari Simonia, “Russian Energy Policy in East Siberia and the Far East,” James A. Baker III
Institute for Public Policy, Rice University, October 2004, 11.
35 “Gazprom: Gas Deal with China to Be Finalized by First Half of 2006,” Caijing Magazine, September
26, 2005 u http://www.caijing.com.cn/newcn/English/Industry/2005-10-03/13870.shtml.
36 “The Russian Oil and Gas Producers,” APS Review Downstream Trends, August 21, 2006.

[ 121 ]
through China and South Korea or to Nakhodka for LNG shipment) such
an outcome is doubtful for several reasons. Most recent reports suggest
that Kovykta gas will not be completely developed until 2017, ten years
later than originally planned. The next section analyzes both past and
current obstacles for successful development and export of Kovykta’s gas
into Northeast Asia.
obstacles to the development
of the kovykta gas pipeline
Since discovery of the Kovykta oil fields, companies and governments
from Europe and Asia have been vying for a stake in their development.
Most of the European companies, however, quickly abandoned their interests
deeming the project uneconomic. Since these companies backed out, efforts
on the part of both Russia and Asia have notably shifted largely to from
company level to that of the state. The companies have merely been appointed
as negotiators on behalf of the states involved. As such, state enthusiasm has
been trumped by several economic realities. This next section overviews
several of the prevailing economic obstacles to Kovykta’s development.
Transit Country Problems
From 1995 to 2007 the Kovykta project has had five major ownership
changes—eachbringingachangeinroutingoptions.Althoughprovenreserves
of the field have increased by 1 trillion cubic meters, the cost of the proposed
pipeline has increased by $10 billion (see Table 1). The periodic inclusion
of Mongolia and North Korea has indeed hindered plans for development
of the Kovykta pipeline and has highlighted the complexities involved when
companies and governments are forced to balance the economic validity of
the project with regional politics and international security.
The South Korean government has often discussed energy cooperation
between the two Koreas, apparently with the primary goal of constructing
an integrated pipeline and electricity network across the Korean Peninsula.
Both China and South Korea are clearly aligned in desiring a stable and
benign North Korea—and resolving North Korea’s energy insecurities
could undoubtedly help achieve this goal. Though the political costs and
risks associated with North Korea are well known, the extension of Russian
pipelines to South Korean (and Northeast Asian) markets via North Korea
has economic as well as political merit. A Northeast Asian pipeline system

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Table 1
Historical Changes in Routes, Ownership, Costs,
and Reserves of Kovykta
Year(s)
Proposed
pipeline route
Distance
(km)
Shareholders
Projected
costs (b)
Estimated
reserves
(bcm)
1995–96 Russia

Yellow Sea
— Sidanco, 50%•
Russia’s Export-•
Import Bank, 50%
$5–7 —
1996–97 Kovykta

Irkutsk

Mongolia

Beijing

Dalian

Yellow Sea

South Korea
3,819 km Sidanco, 38%•
EAGC, 28%•
Irkutsk regional•
administration,
19%
Irkutskerergo,•
14%
$10 ~1,000
2002 Kovykta

Irkutsk

Manzhouli

Harbin

Shenyang

Dalian

North Korea

South Korea
4,065 km BP, 33%•
TNK, 29%•
Interros, 26%•
Irkutsk regional•
administration,
11%
~$12 ~1,900
2003 Kovykta

Irkutsk

Manzhouli

Harbin

Shenyang

Dalian

Yellow Sea

South Korea
4,249 km TNK-BP, 62%•
Interros, 26%•
Irkutsk regional•
administration,
11%
$17 ~2,000
2007 Kovykta

Nakhodka?
— Gazprom, 62%•
Interros, 26%•
Irkutsk regional•
administration,
11%
— ~2,000
Source: Keun-Wook Paik, “Pipeline Gas Introduction to the Korean Peninsula,” Chatham House, January
2005; and various news reports.
Note: Dash indicates no data is available.

[ 123 ]
that is unable to traverse North Korea might inevitably leave both suppliers
and consumers alike worse off. Without competitive market outlets for
Russian gas, LNG supplies from the Middle East and Australia could take
over the gas markets in Asia—a situation that would leave less market share
for Russia and higher energy costs for Northeast Asian and U.S. consumers.37
China’s recent LNG deals with Australia highlight this growing trend. North
KorealiesdirectlybetweenNortheastAsia’smajorbuyersandsellers.Leaving
North Korea out of Northeast Asia’s energy corridor would have world-wide
commercial and political implications.
The inclusion of North Korea in the route, however, temporarily
increased both commercial and political costs to the pipeline. The additional
246 km of pipeline needed for the North Korea route increased costs by $2
billion. Moreover, routing the pipeline through North Korea could have
allowed Pyongyang to easily control the flow of gas to South Korea for
strategic purposes. Although some sectors of the South Korean government
and some in various international organizations agreed in principle to this
route, the 2003 feasibility study—led by TNK-BP—ruled out this option on
both commercial and political grounds.38
The six-party talks, however, are
becoming more sanguine. Given that pipeline projects are extremely slow to
develop, the possibility for North Korea to take part in a regional pipeline
scheme in the future is not completely out of the question.
Mongolia also figured in the pipeline scheme in 1997. Although the
most economic and cost-effective way to transport gas from Kovykta into
China, this possibility of routing the pipeline through Mongolia was quickly
abandoned by China due to domestic concerns. China feared both that the
autonomous region of Inner Mongolia might demand to be a benefactor of
transit fees along with Mongolia and that social unrest might occur if China’s
ethnic Mongolians felt that they were receiving the short end of the stick.39
China worried that Mongolia could easily become an “eastern Ukraine” that
would siphon off gas supplies en route to China. More recently China has had
concerns that Mongolia has become too subject to U.S. influence, especially
given Mongolia’s support for the war on terrorism after September 11, 2001.
37 Peter Hartley, Amy Myers Jaffe, and Kenneth Medlock, “Economic Issues of Natural Gas Trade in
Northeast Asia: Political Bridges and Economic Advantages,” in “New Paradigms for Transpacific
Collaboration,” Korea Economic Institute, Academic Study Series, 2006 u http://www.keia.org/2-
Publications/2-3-Monograph/Monograph2006/04Jaffe.pdf.
38 “Pyongyang Could Be Left Out of Russian Gas Pipeline to Korean Peninsula,” Agence France
Presse, November 12, 2003.
39 Kaoru Yamaguchi and Keii Cho, “Natural Gas in China,” the Institute of Energy Economics, Japan,
August 2003.

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The inclusion of both North Korea and Mongolia in the Kovykta routing
options would have been both economically and politically beneficial. The
Mongolian route was the cheapest option for all parties involved. Bypassing
Mongolia by instead routing the pipeline through the permafrost lands
in Siberia would have significantly increased project costs. Although
more expensive than the Mongolian route, the North Korean option was
considerably cheaper than the most current route consisting of an underwater
pipeline from Dalian to Pyongtaek. The higher construction costs of the
diversions will increase the end-user gas price; Russia will have little room left
to negotiate gas pricing with China, and South Korea will continue to rely on
imported LNG as a more attractive option.
Complexities of Gas Investments
Not often reported in the media is the fact that natural gas is intrinsically
more difficult to trade than oil and requires greater confidence, many more
guarantees, and much more money from investors and governments. The
Kovykta pipeline deal is no exception. Pipelines are rather inflexible—they
require substantial reserves at one end to sustain and fill the pipeline and
a significant market at the other end to justify the investment. Once built,
pipelines cannot be moved and thus lock the seller and buyer into a long-
term relationship. Whether by LNG or pipeline, the natural gas market is
vastly different than the oil market. There is in fact no world gas market—the
majority of the world’s gas is both produced and consumed domestically and
hence lacks a standardized benchmark price. Furthermore, striking natural
gas deals between two parties (let alone three or more parties) involves a
highly sophisticated set of plans and calculations. The huge amounts of front-
end investments and the difficulties and expense of storage and transportation
force parties to make long-term “all-or-nothing” deals. Gas trade has been
traditionally characterized by extremely inflexible contracts arranged between
one concrete buyer and one concrete seller. On average, gas supply contracts
commit two parties to a business relationship for twenty years under tough
“take-or-pay” and destination clauses that essentially prohibit buyers from
either decreasing supplies or selling surplus supplies to third parties. Oil, on
the other hand, is a widely traded commodity that has matured to a stage

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where uniform benchmark prices are firmly in place.40
In the world oil market,
as long as consumers have spare refinery capacity, engaging in a short-term,
low-risk, low-investment contract with a producer is fairly easy. Likewise,
having surplus oil allows producers to find a willing buyer with relative ease.
The combination of the benchmark pricing system and the fluidity at which
physical commodities can be bought and sold with little risk and investment
makes oil deals much less cumbersome and much less strategic than is the
case with gas.41
Though Kovykta has been proposed as a cross-border pipeline project,
Gazprom has recently favored having the Kovykta pipeline follow the
proposed East Siberian-Pacific Ocean (ESPO) oil pipeline route. This route
would not cross international boundaries but would run from Irkutsk to
Nakhodka—a pipeline over 4,000 km in length. A LNG terminal would be
built at Nakhodka so that LNG could be shipped to several Northeast Asian
states without relying on only one or two markets. This proposal, however,
poses several technical and commercial challenges for Gazprom. First,
although extremely capable in pipeline construction, the company has no
experience with LNG. Gazprom would need a major international partner
to provide the technology and experience required not only to build and
operate the terminal but also to manage the LNG supply chain. Second, this
proposal makes little economic sense. LNG is a capital-intensive business
and requires up-front investments in a facilities chain (upstream production
rigs, liquefaction facilities, LNG tankers, regasification facilities, and local
distribution pipelines). Such a chain could cost as much as $5 billion.42
For
LNG to be a profitable business, the gas deposits need to be relatively close
to the terminal; most LNG gas therefore has come from fields just offshore.
Furthermore, LNG facilities are usually upgraded before new terminals
are built. The cost of an upgrade, however, is astronomical in comparison
to an equal capacity upgrade for a pipeline. Roughly speaking, pipelines
can double capacity for only an additional 10–20% of original investment;
LNG, however, would require an additional 50–60% for the same capacity
40 The marker crude system was introduced in the mid-1980s. The spot trade of three main types
of crude (West Texas Intermediate, Brent Lend, and Dubai) acts as a barometer of the overall
market level. Using this pricing system, different grades of oil are priced on negotiable differentials
to the marker grade. The rationale is that the spot price represents the balancing point of supply
and demand. Even though the volumes of oil that trade daily on a term-contract basis between
companies or governments are much larger than those that traded on a spot basis, price is
determined at the margin in the spot market.
41 The authors would like to thank Mikkal Herberg for bringing these points to their attention.
42 Linda Cook, “The Role of LNG in a Global Gas Market” (presentation at the 27th Annual Oil &
Money Conference, London, September 18–19, 2006).

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upgrade.43
After decades of technological advances that have slowly reduced
construction costs of LNG plants, costs are now again on the rise. In 2005
LNG plant construction was below $200 per ton per year of production
capacity. Due to rising raw materials and equipment costs and a growing
shortage of experienced engineers, today these costs are around $500 per
ton per year, with some projects even approaching $1000 per ton per year.
These cost hikes have caused delays of up to three years for several new LNG
projects.
In sum, whether by pipeline or LNG, gas investments are extremely
complexandrisky.Gasprojectsnotonlyneedreliable,long-termcommitments
from consuming countries but also require financial commitments and
technological expertise to sustain a profitable gas business. Kovykta has
been and will remain subject to these problems, which are inherent in gas
investment and export.
Demand Security and Pricing
During the ten-plus years of negotiating over the price and timing of the
Kovykta pipeline, gas markets have gone through three distinct phases. During
the first phase (1996–2000) gas contracts were extremely rigid and prices were
high. During this period South Korea and Japan, the only importers of natural
gas in the region, had government policies and infrastructure that favored the
use of gas. The second phase (2000–05) was a buyer’s market; this phase was
defined by lower oil price linkages, lower gas prices, and more flexible contract
terms. The third (and current) phase—a seller’s market—is characterized both
by prices that link closer to oil and by stricter contract terms. Since the price
of gas and contract terms determine the pace and time of the development of
the gas pipeline as well as the will of foreign investors, the characteristics of
each phase have had distinct implications for the development of the Kovykta
gas pipeline. Furthermore, each party involved in the Kovykta pipeline
negotiations has had different alternatives for gas use—and thus has employed
a different set of calculations when formulating the price of Kovykta gas. For
South Korea the main alternative to pipeline gas is LNG, and for China the
main alternative is coal.
First phase u During the first phase, from 1996 through 1999, China’s
domestic gas production of 17.9 bcm per year could clearly cover the country’s
domestic consumption of 17.4 bcm per year. Gas in China was (and today
43 Al Troner, “Natural Gas: A Natural Choice?” CLSA Quarterly 1, no. 4 (February 2007): 76.

[ 127 ]
largely still is) used to produce fertilizer, rather than in gas-fired power plants.
Gas pipeline grids were sparse, and industrial gas use was concentrated in
China’s northeastern coastal cities. Thus during this phase high costs and
inflexible contract terms made gas a less competitive option compared to
China’s domestic coal supplies. Though indeed having much potential, China
simply did not have a gas market. South Korea therefore was brought in to act
as a stable “anchor” for the project—a new factor that could make the Kovykta
pipeline feasible.
In the wake of the Asian financial crisis, however, gas development plans
in all of Asia slowed to a snail’s pace. South Korea’s gas demand decreased by
800,000 Mt (or 1 bcm).44
KOGAS’s LNG storage was at full capacity, and from
1997 to 2002 South Korea abandoned a total of 76 energy projects.45
As one
example, the Hanbo Group lost most of its stake in the Kovykta project after
going bankrupt in 1997. China, less deeply affected by the financial crisis,
became the silver lining in the project.
There is no consensus as to just how Chinese gas demand will take
shape in the next twenty years. Projections of China’s energy demand made
by various energy agencies differ by as much as 143 bcm (see Figure 3).
This projection gap is roughly equivalent to the average capacity of 47 LNG
terminals or around five Kovykta fields. At a March 2005 seminar the National
Development and Reform Commission (NDRC), China’s main economic
and energy policymaking apparatus, projected that China’s energy demand
could reach 250 bcm per year by 2020—representing a 200% increase over
today’s figures.46
Even with an optimistic domestic gas production outlook
of 150 bcm per year China would still be required to import approximately
100 bcm per year. Beijing’s plans to build fourteen more LNG terminals by
2020 calls into question the need for Kovykta gas, given that the capacity of
these proposed LNG terminals is roughly equivalent to 48 bcm per year. If
Russian, Eurasian, and Southeast Asian pipeline gas is introduced, supply
would be approximately 36 bcm per year above projected demand.47
Although
44 “Asia-Pacific Gas Projects Hit the Wall amid Regional Economic Slump,” Oil and Gas Journal 97,
no. 6 (February 8, 1999): 23–27.
45 Keun-Wook Paik, Valerie Marcel, Glada Lahn, John V. Mitchell, and Erkin Adyiov, “Trends in
Asian NOC Investments Abroad,” Chatham House, Working Background Paper, March 2007.
46 See Akira Miyamoto and Chikako Ishiguro, “Pricing and Demand for LNG in China: Consistency
between LNG and Pipeline Gas in a Fast Growing Market,” Oxford Institute for Energy Studies,
NG-9, January 2006.
47 These figures include high projections of proposed pipelines from Kazakhstan, Turkmenistan,
Myanmar, as well as Kovykta and Sakhalin in Russia. See “Price, Russia Weaken Case for China
LNG,” Petroleum Intelligence Weekly 44, no. 44 (October 31, 2005); and Miyamoto and Ishiguro,
“Pricing and Demand for LNG in China.”

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development of several of these pipelines is highly speculative, building the
Kovykta pipeline to China presents a potentially nightmarish investment
decision. If anticipated sales fall through because China is unable to pay for
the gas, investors will have no way to recover sunk costs.
Few experts doubt that in the near future China’s gas consumption
will undergo extraordinary growth; yet how China will rapidly develop the
country’s gas market is unclear. To what extent will gas account for China’s
power generation? How much investment will China make in municipal
gas distribution systems? Developments related to these questions could
ultimately affect the future of the Kovykta pipeline.
Second phase u During the second phase in natural gas markets,
negotiations over the pipeline were promising but slow-going. With rigorous
diplomatic support, China aggressively pursued development of an LNG
industry. In 2003 North West Shelf Australia LNG won a tender to supply
China’s Guangdong LNG terminal with 3 bcm per year for twenty years at
approximately $3.20 per million British thermal unit (Btu). At that time the
cost of coal in China was approximately $2 per million Btu and the average
cost of China’s domestic natural gas—specifically from the Tarim Basin—
was close to $4 per million Btu. The anticipated price of natural gas from
the Guangdong LNG terminal, however, is $2.80 per million Btu (including
freight) plus $0.40 per million Btu for regasification.48
At a price of $3.20
per million Btu, coal lost some of its competitive edge, making gas a more
attractive option.
Third phase u Since 2006 the global gas market has experienced a third
phase—a seller’s market. Russia has recently demanded higher prices for
nearly all of the country’s exported gas, including gas from Kovykta, insisting
on the need to be competitive with LNG from the Middle East. China is in no
rush, however, to commit to such a high price. In early 2007 Russia offered gas
to China for $300 per 1,000 cubic meters ($8.24 per million Btu), yet China
claims that the country can afford to pay only $180 per 1,000 cubic meters
($4.90 per million Btu).49
In the industry $3.34 per million Btu is a significant
price gap to overcome; that China and Russia are arguing over dollars rather
than cents suggests that the issues will not be quickly resolved.
Recent developments, however, indicate that China might be ready
to accept higher prices for gas imports. In September 2007, after years of
48 “2006 World Energy Outlook,” U.S. Department of Energy, Energy Information Administration,
2006, 45–46 u http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2006).pdf.
49 “China’s Foreign Plans Have a Long Way to Go,” International Gas Report, no. 568, February
26, 2007.

[ 129 ]
hesitation, China secured a long-term LNG supply contract with Australia’s
Woodside Petroleum worth $45 billion. Russia was quick to express
satisfaction, as a China that is prepared to pay market prices to Australia might
likewise be willing to pay what Russia wants. This optimism, however, ignores
two possibilities: that China may be demonstrating a preference for LNG over
pipeline gas, and that Australia is associated with much less political risk than
is Russia.
russia’s resource renationalization
As outlined above, many impediments to development of the Kovykta
project have been economic in nature. In the context of Gazprom’s recent
takeover of the Kovykta project, however, understanding how the changing
economic environment has affected the political and legal landscape in
Russia’s energy sector is particularly important.
As the result of post–Soviet era economic reforms, Russia’s energy
industry had become increasingly competitive and privatized by the
mid-1990s. Within ten years of the Soviet Union’s demise the coal and
oil industries were nearly completely privatized and product prices were
deregulated. According to some calculations, government ownership of
oil and coal companies was below 10% by 2004.50
Russia’s gas industry,
however, has not seen similar reforms for several reasons. First, gas has been
a more stable contributor to Russia’s economy than oil, providing the federal
government with a steady revenue stream throughout the periods of steep
decline in oil prices and production. In 2006 gas alone accounted for around
50%—or $200 billion—of Russia’s total oil and gas rents.51
Second, although
having the largest proven gas reserves in the world, Russia—which consumes
approximately70%ofthecountry’stotalgasproduction—rankssecondinthe
world in natural gas consumption (see Figure 5). Domestic oil consumption,
on the contrary, constitutes only 30% of total production. Although rising,
Russia’s domestic gas prices are fixed well below market price, especially for
residential users. These price distortions have kept domestic demand high,
tightly linking the gas sector to economic development and social stability.
50 Vladimir Milov, Leonard L. Colburn, and Igor Danchenko, “Russia’s Energy Policy: 1992–2005,”
Eurasian Geography and Economics 47, no. 3 (2006): 286.
51 Clifford Gaddy and Fiona Hill, “The Russian Federation,” Brookings Institution, Energy Security
Series, October 2006, 10.

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During the presidency of Boris Yeltsin (1991–99) world oil prices
averaged around $14 per barrel, dropping as low as $8 per barrel in the late
1990s (see Figure 6). Under these conditions, Russia became more open to
foreign investments and began to allow foreign ownership of energy resources.
Since Vladimir Putin’s rise to the presidency in 2000, however, skyrocketing
oil prices have brought the average world crude price over the past seven years
to approximately $34 per barrel.52
In the last two years crude oil prices have
hovered around $70 per barrel and even topped $100 per barrel. By some
estimates federal earnings from oil and gas under Putin are ten times greater
than under Yeltsin.53
As oil and gas have become central to Russia’s economy, Putin has
taken great strides toward gaining control of the energy industry. In 2001
Putin appointed three high-level executives at Gazprom, all of whom were
either friends of Putin or former Putin administration officials.54
As aptly
52 Based on authors’ own calculations using “Crude Oil Price Summary,” Energy Information
Administration, 2007 u www.eia.doe.gov.
53 Gaddy and Hill, “The Russian Federation,” 7.
54 These appointees are Dmitry Medvedev (chairman), Aleksei Miller (president), and Igor Yusufov
(board of directors). See Michael Fredholm, “The Russian Energy Strategy and Energy Policy:
Pipeline Diplomacy or Mutual Dependence?” Conflict Studies Research Centre, September 2005.
figure 5
Distribution of Russia’s Oil and Gas Production, 1991–2006
Source: “BP Statistical Review of World Energy 2007.”
Consumption Exports
Billioncubicmeters
Year
1991
1993
1995
1997
1999
2001
2003
2005
0
100
200
300
400
500
600
700
Gas
Millionbarrelsperday
Year
1991
1993
1995
1997
1999
2001
2003
2005
0
1
2
3
4
5
6
7
8
9
10
Oil

[ 131 ]
characterized in a Swedish defense analysis, “Putin is creating a culture of
a politically correct market economy.”55
With the oligarchs that run Russia’s
energy companies voluntarily and naturally placing state interests on par with
commercial ones, direct state intervention no longer seems necessary.
In the mid-1990s when Asian companies entered into the Kovykta
pipeline negotiations, energy prices were low and the Kremlin was weak. The
autonomous rights of regional authorities (such as those in Sakha and Irkutsk)
were also at a peak, enabling these locales to have greater influence and
independent decisionmaking regarding resource planning and management.
Irkutsk’s remoteness from Moscow contributed to this autonomy as well.
Known as the “two key” system, Russia’s Subsoil Law of 1992 gave both the
regional (oblast) and federal governments authority over subsoil use. With
the assignment of Gazprom as chief negotiator of Kovykta and a series of
amendments to the law, however, regional authority over subsoil use was
55 Robert Larson, “Russia’s Energy Policies: Security Dimensions and Russia’s Reliability as an Energy
Supplier,” Swedish Defence Research Agency, Defence Analysis, March 2006 u http://www2.foi.se/
rapp/foir1934.pdf.
figure 6
Crude Oil Price per Barrel, 1970–2006Price($)
Year
Source: “BP Statistical Review of World Energy 2007.”
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
0
10
20
30
40
50
60
70
80
90
100

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stripped and all rights over the issuing or revoking of subsoil licenses were
solely retained by the Kremlin.56
Apart from a role as a small shareholder, the
Irkutsk regional government was removed as the central negotiating authority
in the Kovykta pipeline.
In response to these power shifts, China, South Korea, and TNK-BP
became heavily involved in a type of shuttle diplomacy, with representatives
travelling between Irkutsk and Moscow in attempts to figure out who was
in charge. Both China and South Korea were often confused as to with
whom or what company—the project’s main shareholder and operator
(TNK-BP), Russia’s export monopoly (Gazprom), or the federal government
(the Kremlin)—negotiations ought to be conducted. On the sidelines of
recent Kovykta negotiations South Korea and China uncharacteristically
publicized frustration regarding Russia’s ambiguities. Discussing the state of
Sino-Russian energy cooperation and the proposed pipeline, in an interview
in 2006 Zhangguo Bao, former vice-director of China’s NDRC made the
following statement:
Currently, the Sino-Russia pipeline question is one step forward,
two steps back. Today is cloudy with a chance of rain while
tomorrow is sunny with a chance for clouds, just like a weather
forecast. One minute Russia has said they have made a decision,
the next saying that no decision has been made…Truthfully,
we’ve been in contact with Russia for such a long time, but we
still don’t understand Russia, I feel. We don’t know who can
make a decision, or who to seek out…We’ve talked to Putin and
department heads. We’ve talked to everyone in the government.
They say they can’t make a decision, and that we should talk to the
private sector. We’ve meet with every company. They say they can’t
sign an agreement and we should talk to the government.57
The lack of transparency in Russia’s energy policy has clearly left all
negotiating parties in limbo.
Balancing Russia’s Domestic and European Demand
Gazprom’s entire gas production (apart from that which is consumed
domestically) is exported directly to European and Eurasian markets;
Germany, Italy, and Turkey are Gazprom’s largest and most important
customers. Nine out of Russia’s top fifteen importers rely on the company
56 Jennifer Josefson, “Policy Challenges: A Russian Perspective,” in Energy Futures, ed. Ralf Boscheck
(New York: Palgrave MacMillin, 2007), 98–107.
57 “China Energy Report Weekly,” Interfax Information Services, March 4–10, 2006, 27–28.

[ 133 ]
for over 50% of their gas needs.58
Some European counties, although hoping
to diversify gas imports, are locked in to dependence on Russian imports
by decades-old pipelines. Because Russia keeps domestic prices well below
international market prices Gazprom is completely reliant on Europe for
revenues.Geopolitically,GazpromiscurrentlyattemptingtocreateaEuropean
monopoly by undermining efforts by Iran, Turkmenistan, and Kazakhstan to
export gas to the European market. Because the majority of Russia’s pipelines
are aimed toward Europe, Gazprom has focused on Europe and placed Asia
on the backburner.
Russian domestic demand is another factor behind the politicization of
Russia’s gas industry. Although Russia currently ranks second in the world
in gas use (behind the United States), the Russian economy is only one-
twentieth the size of the U.S. economy. Low-priced gas fuels much of Russia’s
industrial sector, and fixed prices allow household energy bills to remain
low. Although Gazprom is lobbying hard for a sharp increase in domestic
prices the Kremlin remains reluctant to raise prices for fear of provoking
economic and social stresses.
The political aspects of the recent price debacle with Ukraine received
much attention, yet the move to shut off the gas spigot clearly was an indication
of Russia’s fear of overstretching Gazprom’s other export commitments.59
An
overcommitment to European consumers would require Russia (Gazprom)
to decrease supplies (i.e., raise prices) to domestic users. Either choice packs a
political punch that neither Gazprom nor the Kremlin wants to feel.
In a worst-case scenario, Russia could also connect Kovykta with the
country’s existing unified gas supply system for domestic consumption in
order to relieve other gas fields that could supply exports to Europe. If Russia
continues to focus on Europe without increasing production, raising domestic
gas prices, and curbing domestic demand, how can Gazprom justifiably export
Kovykta gas to a China that refuses to pay market prices?
Russia’s New Subsoil Law
As mentioned above, Russia’s subsoil law, implemented in 1992, gave
considerable power to regional authorities over subsoil exploitation. The law
58 “Country Analysis Brief: Russia,” U.S. Department of Energy, Energy Information Administration,
April 2007 u http://www.eia.doe.gov/emeu/cabs/Russia/Background.html.
59 Due to disagreements over natural gas prices, Gazprom shut off gas supplies to Ukraine on January
1, 2006, a move that also affected gas supplies to other parts of Europe. According to the U.S.
Department of Energy, this was the first time that a supply disruption from Russia affected flows to
Europe.

[ 134 ]
asia policy
has, however, been amended several times since then. In 2005 the Kremlin
submitted to the Duma a new subsoil law—the Draft Law—that merely legally
enforces what has already been in practice for several years. The major issue
that concerns international oil companies (TNK-BP in this case) is the clause
on foreign ownership and “strategic” resources. According to the new law, no
foreign entity can have controlling stakes (over 50% plus one share) in any of
Russia’s “strategic” resources. The Draft Law defines as strategic (1) various
rare resources such as diamonds, uranium, or quartz; (2) deposits from any
oil field containing over one billion barrels or any gas field containing over one
trillion cubic meters of gas; and (3) any reserve in close proximity to a military
base.60
With two trillion cubic meters of gas, Kovykta is deemed a “strategic”
resource. As stipulated in the law, neither Gazprom nor the government could
strip any foreign owners of their assets if a license or production-sharing
agreement (PSA) was conducted before the amendments to the law came into
effect. Aware that TNK-BP was not living up to its production requirements,
Gazprom waited to “legally” take over the project.
Kovykta’s Periphery
For years Gazprom has considered several pipeline options to China
and East Asia and even the construction of an integrated oil and gas supply,
storage, and transition system that would tie together all of the country’s
major fields for export to Asia and beyond. In an energy strategy document
the Russian Ministry of Energy outlines the country’s far-reaching goals to
take over 25% of Northeast Asia’s gas market before 2020.61
Russia has no
pipelines in the region, however, and until recently Gazprom has had no
major stakes in any of the key fields in East Siberia and the Russian Far East.
As such, Gazprom has begun to force its way into all of the major oil and gas
fields in the region; using environmental NGOs and the Ministry of Natural
Resources to “soften up” the international oil companies (IOC), Gazprom has
managed to get in on favorable terms. Gazprom is in essence “expropriating”
these fields with a nominal financial recompense.62
This use of strong-arm
tactics by Gazprom shows that Russia is bent only on controlling these last
“strategic” resources on the country’s frontier, not on controlling the actual
60 Josefson, “Policy Challenges,” 104–5.
61 “The Summary of the Energy Strategy of Russia for the Period of up to 2020,” Ministry of Energy
of the Russian Federation, (Moscow 2003), 12 u http://ec.europa.eu/energy/russia/events/
doc/2003_strategy_2020_en.pdf.
62 “Kovykta–Why Not Call It Expropriation,” Energy Economist, no. 309 (July 2007): 3.

[ 135 ]
means of gas transportation and export. Because Gazprom lacks an open and
coherent strategy and Russia’s PSA laws are deteriorating, both international
oil companies and East Asian consumer countries have come to seriously
question Russia’s reliability as an energy partner. Both the IOCs and Russia
have been competing to gain entry into Asian markets, peripheral export
options that have also undermined Kovykta’s positioning.
Altai u Gazprom’s most recent gas export proposal to China has not
been Kovykta but “Altai.” Gazprom has proposed building a pipeline to China
that crosses the western most point of the Russia-China border over the Altai
(or Altay) mountain range. According to Russia, the Altai pipeline is to be the
first of two potential pipelines to China. Altai gas would come from fields in
Western Siberia and connect with China’s West-East pipeline, which carries
gas from fields in Xinjiang to markets in Shanghai.
Notable, however, is that the Altai pipeline proposal was set forth shortly
after the Ukrainian gas price debacle—which temporarily halted gas exports
to many European countries—when European policymakers began discussing
“diversifying” gas sources. Viewed by analysts more as a political rebuttal
than as a sound commercial pursuit, this proposal seems designed to show
that Russia can easily divert gas away from Europe to other markets should
Moscow choose to do so. Moreover, political leaders in the Republic of Altai
have expressed fears that Chinese labor could expand China’s influence and
presence in the region.63
Chayanda u With gas reserves of 1.2 trillion cubic meters, the
Chayandinskoye (Chayanda) field in Yakutia (like Kovykta) was officially
deemed strategic in 2005. Although Chayanda contains only approximately
half as much gas as Kovykta and is far behind Kovykta in the development
process, Russia seems determined to develop this field before Kovykta. The
Sakha government has held several meetings with representatives from China
and South Korea over future exports. In an effort to undermine Kovykta,
the Republic of Sakha formed a strategic alliance with Gazprom in 2002 and
began promoting the development and export of Chayanda gas. For Gazprom,
the Chayanda field represented a timely and strategic potential investment.
Chayanda was in fact one of the only major fields in Russia’s eastern frontier
that was not operated by international oil companies. Gazprom could thus
63 “Altai Community Approves Gas Pipeline Construction to China Following Harsh Argument,”
Republic of Altai u http://eng.altai-republic.ru/modules.php?op=modload&name=News&file=arti
cle&sid=597.

[ 136 ]
asia policy
use the threat of Chayanda exports to bypass TNK-BP’s export plan.64
There
have even been reports of Russia offering China 10% of Sakha reserves free of
charge if China were to commit to early development of the field.65
In 2003 the Kremlin held a cabinet meeting to discuss the concept of
a unified pipeline system in Eastern Siberia and the Far East. This concept
envisioned a pipeline network connecting all the major eastern gas fields—
Tomsk (which would link up to Russia’s western gas supply system), Chayanda,
Khabarovsk (where the pipeline would connect to a pipeline that routed the
off-shore Sakhalin gas), and Vladivostok (where it would terminate).Expected
to extend more than 6,000 kilometers, this pipeline did not, however, include
Kovykta in the first set of plans. Since Kovykta was at that time majority owned
by TNK-BP, Gazprom viewed Kovykta exports as endangering not only the
merit of the other fields in the region but also the potential company and state
revenues that could be gained from Chayanda.66
Since gaining control of Kovykta, however, Gazprom’s tone has changed.
Kovykta will be included in this proposed pipeline system, though the time
line is for Chayanda to be online by 2016 and Kovykta by 2017. Large-scale
exploration is not yet underway and may not even begin until Gazprom
has an exploration permit. Gazprom has been aggressively negotiating with
the Ministry of Natural Resources to receive a production license for the
Chayandinskoye field without having to compete with other companies in
an open auction. Looking at Gazprom’s record, it will be surprising if the
company fails to take over this project.
Sakhalin u To date Sakhalin has been the most successful of the oil and
gas fields in eastern Russia. Sakhalin’s success is largely due to fact that for the
most part foreign oil companies have undergone the exploration, production,
and development of these fields, which are protected under a PSA.67
Because
the three largest gas markets—Japan, the United States, and South Korea—
are in such close proximity to the projects, Gazprom has grown convinced
that the company would miss out on a huge commercial opportunity if not
involved. Sakhalin also represents a good opportunity for Gazprom to begin
64 Jonathan Stern, The Future of Russian Gas and Gazprom (Oxford: Oxford Institute for Energy
Studies, 2005), 155–6.
65 Xu Yihe, “South Korea May Lose Out on Russia Gas,” Dow Jones Newswire, March 7, 2001.
66 Keun-Wook Paik, “Pipeline Gas Introduction to the Korea Peninsula,” Chatham House, January 2005.
67 For in-depth analyses of the tax structures and PSA arrangements of the Sakhalin projects, see
Judith Thornton, “Sakhalin Energy,” Comparative Economic Studies 43, no. 4 (Winter 2001): 9–32.
For a good comparative overview of energy fiscal regimes, see David Johnston, “Petroleum Fiscal
Systems: Royalty/Tax Systems, Production Sharing Contracts and Service Agreements Compared,”
in Boscheck, Energy Futures, 27–71.

[ 137 ]
learning the LNG business. For Russia, LNG exports are both commercially
and geopolitically safer than cross-border pipelines, given that LNG can more
easily avoid being trapped in a monopsony.
Of the six Sakhalin projects Sakhalin-1 and -2 have the greatest
production potential and have moved along the fastest. Though not yet
exporting LNG, Sakhalin-2 has already committed all of the project’s future
LNG exports.68
After months of complaining about environmental concerns
andincreasingcostsassociatedwithSakhalin-2,Gazprommanagedtoobtain
Shell’s position as majority shareholder—acquiring a 50% (plus one share)
stake in the project for $7.45 billion in December 2006. Not surprisingly
Gazprom ceased accusations over the project’s negative environmental
impacts after the takeover.
Exxon operates Sakhalin-1 and for years has had plans to build a pipeline
to China. In 2006 Exxon signed an agreement with CNPC to supply China
with 8 bcm of gas. Sakhalin-1 is currently the only PSA project outside
Gazprom’s control, and Exxon’s unilateral export of this gas could potentially
undermine Gazprom’s price negotiations with China over gas supply from
any field. Gazprom has therefore severely criticized Exxon’s plan, claiming
that the company will buy all future gas production from the consortium to
supply the domestic market in the Khabarovsk and Primorye regions.
future outlook
Gazprom’s consolidation of gas projects in Siberia and the Far East has
allowed Russia to present several export options to Northeast Asia. Including
Kovykta, Russia has proposed nearly 60 bcm of gas to both China and South
Korea. As a result of Gazprom’s aggressive behavior in eastern Russia and
threats to target proposed gas for domestic use, Northeast Asian countries
have been turning elsewhere for gas supplies. China in particular is hedging
its bets by looking to Turkmenistan and Myanmar for pipeline gas and to
Australia for LNG. Turkmenistan is vitally important to Russia, which is
dependent on Turkmen gas imports to meet European export obligations.
That China has approached Turkmenistan could set a negative tone for any
Russian-Chinese gas discussions.69
China has also been courting Myanmar,
68 Of the total supplies 2% are being retained for operational flexibility. See Michael Bradshaw,
“Sakhalin-2 in the Firing Line: Environmental Protection or Administrative Leverage,” Pacific
Russia Oil & Gas Report, Winter 2006, 11–8.
69 Rachel Graham, “What Gazprom Wants Gazprom Gets,” Energy Economist, no. 309 (July, 2007): 27.

[ 138 ]
asia policy
and the junta recently awarded CNPC with a supply contract of 16 bcm per
year. The deal is geopolitically strategic in nature for China; not only does
negotiating with Myanmar place China in a stronger position to negotiate
with Russia and Iran over gas supply contracts, but a pipeline from Myanmar
to Kunming would also establish the groundwork for building additional oil
pipelines that would allow China’s imports to bypass the Malacca Strait.
Although Gazprom’s takeover of the project in the summer of 2007 could
in theory expedite the development of Kovykta, other considerations suggest
that the pace may not increase. Gazprom has now assumed controlling stakes
in the largest gas projects in Eastern Siberia and the Russian Far East and is
able to coordinate all gas exports to China, South Korea, and Japan. Gazprom’s
controlling stakes give the company the upper hand in price negotiations with
Northeast Asia, as countries from the region can no longer negotiate with
the international oil companies to get a lower price. The future of Kovykta,
therefore, now depends both on the resolution of price negotiations between
Russia and China and on Gazprom’s ability to successfully finance and operate
several new projects simultaneously in eastern Russia.
Even if China and Russia should reach a price agreement will Gazprom
be able to competently finance, operate, and manage all of these new projects?
Gazprom is among the world’s least efficient energy companies; the company
uses export earnings to subsidize loss-incurring domestic sales at only
approximately 20% of world market prices. Although Gazprom has access to
foreignlendingtofunditscapitalexpenditure,thecompany’sinvestmentplans
are affected by high levels of debt and continued uncertainty about gas market
reform. The government hopes that by removing the “ring-fence”—limiting
foreign share ownership in the company—Gazprom will be better positioned
to raise much-needed investment capital. Foreign banks have, however, been
slow to come forward with funding for Gazprom lately. The European Bank
for Reconstruction and Development, for instance, pulled out of negotiations
on providing $600 million worth of funding Sakhalin-2 after Gazprom took
control of the project.
When Gazprom controls all the major fields in Eastern Siberia and the
Russian Far East, the company will have to reevaluate its relationships with the
IOCs. Although in some regards Gazprom has an advantage in that the IOCs
have fewer places to turn for new investments, Gazprom will nevertheless
need to rely on the technology and management skills of these IOCs to

[ 139 ]
effectively develop and export Eastern Siberian and Russian Far Eastern
gas. As a notable observer of the Russian Far East has observed, “only the
IOCs have the experience to delimit the reserves and deliver a commercially
viable development strategy.”70
Judging from the fact that Gazprom revises
its investment program several times per year, Gazprom evidently has few
strategies or plans to deliver such skills. Political expediency has thus far
dictated Gazprom’s export policy. Although some foreign investors remain
in Russia, the IOCs will likely reassess political and commercial risk at some
point, which may have consequences for any future investment.
With Gazprom’s attention on Sakhalin and further European expansion,
for the foreseeable future Kovykta will likely either sit idly or be used to supply
the domestic market. Though neither option may be the most attractive for
Gazprom, the company can afford to allow either to happen in this high-price
environment. Both of these scenarios present formidable implications for
Northeast Asia and the United States. Japan, South Korea, and the United
States are the world’s largest natural gas consumers, and China will join the
ranks. If Russia’s giant gas fields are not permitted significant market outlets in
Asia, global supply will fall, thus effectively keeping gas prices higher than they
would be otherwise. The fate of Kovykta therefore has direct energy security
implications for the United States. As seen through its recent Australian deal,
China is turning toward LNG rather than waiting for the Kovykta pipeline
issue to be resolved. Increasingly China, South Korea, and Japan will look
further west of the Malacca Strait for LNG supplies as well, putting those
countriesindirectcompetitionwiththeUnitedStatesandpotentiallyreducing
LNG supplies to the U.S. West Coast. Increased competition for new supplies
may also give further impetus to perceptions of energy insecurity among the
consumers. Although competition is indeed a positive factor in the energy
industry, in an environment of high prices and limited supplies company-level
competition can quickly turn into state-level competition, especially given the
growing perception that many oil companies are partially controlled by their
home governments. In the absence of Russian gas supplies, China, Japan, and
South Korea may decide to increase diplomatic and strategic ties with many
of the gas-producing countries that the United States deems unsavory—
particularly Iran and Myanmar. Therefore, should Russia increase supplies to
Northeast Asian markets not only will those consumers directly benefit but
the United States will indirectly benefit from declining prices, easing anxiety
70 Michael Bradshaw, “Striking a New Deal: Cooperation Remains Essential,” Pacific Russia
Information Group, Pacific Russia Oil and Gas Report, Summer 2007, 14.

[ 140 ]
asia policy
over supply security, and softening (potentially) greater strategic ties between
Northeast Asian states and “problem” gas-producers.
To paraphrase Daniel Yergin, the largest obstacles to the development
of new supplies are not the factors below ground, such as geology, but are
rather factors above ground, such as international affairs, politics, and
investment.71
The Kovykta pipeline is merely a microcosm of the major
energy issues entrenched in the region. Kovykta or any other trans-border
project in the Russian Far East will not materialize unless such projects are
actively supported by favorable domestic and international policies. Regional
long-term gas deals also require competent corporate management, contract
sanctity, and adequate and secure financing. Most of these necessities are,
however, far from being in place in Russia’s Far East. 
71 Daniel Yergin, “Ensuring Energy Security,” Foreign Affairs (March/April 2006): 75.

Northeast Asia's Kovykta Conundrum

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