revista presei 13 august

2009/08/13

Adevarul: OMV: problemele Petrom continuă

Deşi consumul de gaze îşi va reveni uşor spre finalul anului, creşterea importurilor va afecta producţia Petrom, spune acţionarul majoritar. Compania românească rămâne totuşi pilonul grupului OMV în Europa de Sud-Est, în timp ce Turcia este privită ca o piaţă promiţătoare.

Scăderea masivă a pieţei gazelor din România, corelată cu oferta OMV de preluare a pachetului majoritar de acţiuni la compania turcă Petrol Ofisi, a determinat presa austriacă şi analiştii de profil să speculeze pe tema unei întoarceri la 180 de grade a strategiei grupului austriac faţă de subsidiara din România. Mai mult, posibila revizuire, la finele anului, a investiţiilor în rafinăriile Petrom a alimentat calculele potrivit cărora a venit vremea ca expansiunea pieţei din Europa de Sud-Est să ia sfârşit.

Cea mai mare scădere

Oficial însă, OMV nu şi-a întors faţa de la Petrom. „Încă de la privatizare, Petrom a fost şi încă este pilonul nostru în Europa de Est şi de Sud-Est“, au declarat, pentru „Adevărul“, reprezentanţii OMV. Totuşi, ei recunosc că, în ultimul an, condiţiile economice s-au schimbat, iar indicatori cruciali precum preţul ţiţeiului, marjele de rafinare şi rata de schimb euro-dolar vor rămâne extrem de volatili tot restul anului.

„În România ne confruntăm cu o reducere semnificativă a cererii de gaze, din cauza scăderii consumului industrial, în special din partea sectorului chimic. În continuare, o creştere a ponderii importurilor spre finele anului ar putea afecta producţia Petrom“, mai spun oficialii companiei austriece. În plus, declaraţiile şefului OMV în presa locală conţin cifre alarmante. „În România, consumul de gaze a scăzut cu 30%.

Cantitatea de gaze vândută de Petrom a scăzut în cel de-al doilea trimestru al anului cu 27%, în timp ce, pe alte pieţe unde activează OMV, reducerile au fost cuprinse între 5 şi 15%“, spune Wolfgang Ruttenstorfer, preşedintele companiei. Importurile de gaze au fost mai mici cu 77% în primele şase luni, din cauza pieţei scăzute. Însă atât Romgaz, cât şi Petrom, cei doi mai producători interni de gaze, estimează o revenire a cererii spre finele anului, ceea ce ar atrage importuri mai mari.

În plus, lunile de graţie în care consumatorii industriali au putut utiliza doar gaze din producţia internă expiră în octombrie. Dar folosirea gazelor ruseşti înseamnă scăderea producţiei interne. Cu alte cuvinte, revenirea pieţei gazelor va afecta Petrom din alt unghi, cel al reducerii producţiei.

Pieţele emergente îşi vor reveni

Totuşi, OMV menţine Petrom pe aceeaşi linie strategică de dezvoltare, însă cu paşi mai mici şi mai prudenţi decât se dorea iniţial. În segmentul de explorare şi producţie, programul de modernizare a adus deja îmbunătăţiri operaţionale, iar activitatea se va concentra pe controlul costurilor şi prioritizarea proiectelor. Investiţiile planificate în rafinare sunt în proces de revizuire, iar o decizie va veni la finele acestui an.

Oficialii OMV nu au comentat declaraţiilor unor specialişti, potrivit cărora creşterea pieţei din această regiune a luat sfârşit. „Deşi indicatorii sunt extrem de volatili, estul şi sud‑estul Europei reprezintă piaţa noastră de bază“, spun acţionarii majoritari ai Petrom, adăugând că se aşteaptă la o revenire a pieţelor emergente, categorie care include şi România.

Liantul dintre cerere şi ofertă

În ceea ce priveşte preluarea Petrol Ofisi, compania petrolieră turcă la care OMV deţine deja 41,5% din acţiuni, oficialii OMV analizează orice posibilitate, inclusiv varianta achiziţiei integrale. OMV vede piaţa din Turcia ca fiind extrem de promiţătoare. „Turcia leagă regiunile furnizoare din zona Caspică şi Orientul Mijlociu cu pieţele de downstream din centrul şi sud-estul Europei“, au explicat oficialii OMV interesul pentru această companie.

BBC: Russian economy shows mixed signs

A gas pipeline from Russia

Oil is sharply lower than it was a year ago

Russia’s economy shrank at an annualised pace of 10.9% in the three months to 30 June, Federal State Statistics figures have shown.

The fall was greater than forecast and more than the 9.8% contraction seen in the first quarter.

But compared with that first quarter, the Russian economy expanded 7.5% between April and June.

Russia has been hit by the sharp fall in energy prices compared with a year ago, when oil peaked at $147 a barrel.

‘Bad debts’

“It’s much worse than the market expected,” said Chris Weafer at Uralsib investment bank in Moscow.

He explained that the economy’s continuing contraction was not simply a result of lower oil prices.

“The underlying problem is the fact that there is very little bank lending taking place beyond the biggest companies accessing loans from big state banks.

“This is due to uncertainty about non-performing loans and bad debts,” he said.

Russia, which is heavily reliant on oil exports, now expects its economy to shrink as much as 8.5% in 2009.

Novinite: Geopolitics Professor Rumen Kanchev: Bulgaria Must Stay away from Russian Energy Projects

Bulgaria: Geopolitics Professor Rumen Kanchev: Bulgaria Must Stay away from Russian Energy Projects

Interview with Rumen Kanchev, Associate Professor in Geopolitics and Strategic Studies at New Bulgarian University, who recently published the book “Why Russia Does Not Pursue a Western-Style Democracy: Kremlin’s Geopolitical Ambitions at the Beginning of the 21st Century”.

Professor Rumen Kanchev is the Director of the Center for European and Security Studies, an independent Sofia-based think-tank. He is a former Deputy Minister of Defense (1997-1999), and a Senior National Security Adviser (1999-2003), and has been involved in developing Bulgaria’s post-Cold War “Military Doctrine” (1992) and “National Security Strategy” (1998). Rumen Kanchev has specialized at the Center for Strategic and International Studies in Washington, DC, among others.

Did the West handle Russia’s post-communist transition in the right way? Why doesn’t Russia pursue a Western-style democracy?

The main aim and desire of the West after the end of the Cold War and the breakup of the Soviet Union was to integrate Russia with the Western democratic values and economic model, turning it into a free and democratic state from the Western family of democracies.

The West used this approach towards all of the former Warsaw Pact states, including those who split off from the USSR. The administration of President Yeltsin accepted it, and was generally trying to steer Russia into this direction. The Kremlin was trying to become a partner of the Western states, while building a strategic cooperation with Washington.

A whole range of events within just a few years led to an abrupt change of this strategy, and marked the beginning of a new trend in Russia’s relations with the Western world: the coming to power of President Vladimir Putin in 2000; the re-nationalization of large economic entities and the chasing away of powerful Western investors, especially in the energy sector; the establishment of a new strictly hierarchical “vertical structure” of power; the centering of the military reform around the development of the strategic nuclear forces as the only element that could guarantee the sovereignty and integrity of the Russian state, in the view of Russian experts; the creation of a special strategy turning the production, transportation, and sale of energy resources into an instrument for exerting pressure in the foreign policy field, to name a few.

Russian Prime Minister and former President Vladimir Putin marked 10 years in power on August 9, 2009. Photo by EPA/BGNES

When put together as a coherent and consistent policy, all these elements gradually led to Russia’s confrontation with the USA and the Western democracies. Meanwhile, NATO’s expansion to Russia’s borders, the rise of the USA as the sole global leader, the treatment of Russia by neoconservative Western circles as a second-rate power, and the collapse of its international prestige created a favorable environment for revanchist geopolitical sentiments among the Russian political elites, and for a sharp turn of the political system towards a more or less authoritarian style of government that the Kremlin ideologies tried to present as a democratic alternative of the Western democracy.

The last months of the term of US President George W. Bush marked the lowest point in the US-Russia relations since the Cold War which gave the new Obama Administration the grounds to speak of the need to “restart” the Washington-Moscow relations.

In your book, you talk about Russia’s “imperial complex” and “civilization complex”. What do these “complexes” consist of?

The imperial and civilization complexes of Russia reflect two different aspects of the same phenomenon: the Kremlin’s ambition to restore Russia’s geopolitical significance as a first-rate world power. The first complex is based on the geostrategic realities, the second is related to Russia’s actual place in the context of the European history, culture, and civilization.

After the breakup of the USSR, Russia continues to have the largest territory in the world with one-eighth of the landmass. In addition, it has enormous deposits of strategic resources, oil, natural gas, and a perfect geographic location on the globe. Russia still has the second largest strategic nuclear potential after that of the USA.

Since 2000, Putin has consolidated a very specific political elite recruited primarily from officers of the KGB, today’s secret services, and some of the Russian oligarchs. This elite is rich, well-educated, controls the instruments of power, and is not happy with today’s place and role of Russia on the world stage. This is where the renaissance of this type of imperial complex comes from, which was first instilled into the political thinking by Emperor Petar I.

At the beginning of the 21st century this complex feeds upon several factors: nostalgia for the past when Russia was one of the two superpowers; economic revival resulting from the favorable condition of the energy resource markets until 2008; the existing semi-authoritarian regime controlling key elements of the system; the “state militarism” incorporated within the hierarchy of power through the mentality of strict military subordination. All these factors are “working” for Russia’s new role on the geopolitical scene.

The civilization complex is formed on the basis of the paradoxical situation of Russia in Eurasia, which creates the question: Which civilization trend does Russia belong to – the European or the Asian? For instance, Russia hasn’t had Europe’s historic development. Such important European cultural periods as the Antiquity, the Middle Ages, the Enlightenment, the Renaissance, etc, economic stages such as capitalism, political models such as the Athens democracy, the Roman Republic, the medieval city-states that evolved into nation-states are all foreign to the Russian history. The Russian religious tradition is also very different from that in the West. A large portion of the Russian population is immobile, conservative, and adverse to change.

Russia’s civilization problem that emerged as a result of these developments consists of how it must behave towards the European identity, and the no less powerful civilization impulses coming from Asia. This attempt to synthesize the European and the Asia identity puts Russia in a paradoxical situation.

The inability of the Russian political and intellectual elite to bring the country closer to the Western values has affected negatively both Russia and the West. Even today Russia is a capitalist state with a functioning market economy but the political model it is constructing corresponds with the model of Western democracy only on paper.

These facts have created a very distorted image of leadership and historical consciousness among the Russians, and an equivocal attitude towards the West – of admiration for its glorious history and culture, and a political complex fueled by geopolitical pride coupled with a lack of desire to follow the Western development models. While today’s real intellectual elite of Russia is very committed to Western democratic values, the elite that is consolidated around the government is trying to construct Russia’s 21st century strategy based on its differences with the West. The first group sees the West in terms of values, the second one – in terms of geopolitics.

The thinking of the first group is dominated by the idea to integrate Russia in Europe; to the contrary, the thinking of the second is dominated by the idea to restore the past geopolitical influence. Of course, the politicians are the ones who are the decision-makers.

The three large-scale Russian energy projects on the Balkans/in Bulgaria. Map by Nezavisimaya Gazeta

Is there a deterministic relationship between the price of energy resources on the world market, and the aggressiveness, i.e. pro-activeness of the Russian foreign policy? Which are the weaknesses of the Russian strategy to use energy in order to exert pressure? Why do you think that this could not work out as a long-term strategy?

There is definitely a deterministic relationship here. But if one strategy is only based on one element, the element’s removal leads to the destruction of the strategy. It is clear that the sharp decline of the prices of energy resources after 2008 has created huge problems for the Russian economy. And the Russian political leadership knows that without the help of the highly technologically developed West it would not be able to diversify its economy, and to achieve a long-term economic growth.

Meanwhile, the strategy to use the energy resources to pressure Europe is practically consolidating the Europeans and motivating them to seek a way out of this dependence. Geopolitically, this leads to a more flexible policy of the EU and USA in Central Asia and the Greater Caspian and Black Sea Region where a large part of the energy resources that Russia buys in order to sell them to the Europeans come from.

This has unfavorable effects for Russia since the energy-rich Central Asian states may start to sell their energy resources directly to the Europeans without Moscow as an intermediary. Another negative consequence has to do with creating tension over energy between Russia and the EU since Kremlin’s attitude is turned against EU’s unity, which is a strategic element of the development of the EU in the 21st century.

Is the EU more dependent on Russia, or Russia is more dependent on the EU? Could Russia “turn”, i.e. direct the gas to the East?

Russia is not at all indifferent towards the EU market. To the contrary – today as well as in the long run the Kremlin will not find a partner that is more honest and fair than the Europeans. The European market takes in 54% of the Russian export including 84,8% of the total quantity of natural gas that Russia produces. About 75% of Russia’s total annual state export revenue depends on the European market.

“Turning” the natural gas to the east would have serious economic and geopolitical consequences. First of all, it would mean entering a much less profitable zone since China would not be able to pay for the energy resources the same price paid by the Europeans. Second, in order to “direct” the gas to the east, Russia would need to build a transport network – something that can’t happen in the next 15 years since it is technologically hard, and requires hard negotiations with a number of transit countries, whose interests will not coincide with the Russian ones.

Third, even though China and Russia have good relations, Beijing is setting extremely ambitions geopolitical goals for itself. At the beginning of the new century China crafted a long-term strategy for its development (for the period around 2050), according to which by the end of that period it must turn into a world power dominating economically and politically the Asia-Pacific.

The Chinese economy is ranked third after the economies of the USA and Japan; after 2000, it has been growing at about 10% a year; China has a population of over 1,3 billion, whereas the Russian population is about 140 million. In the recent years China has increased steeply its defense spending, and is ranked fourth in the world by its official defense budget. The Russian economy is still underdeveloped. It is ranked 58th in the world on the key “global competitiveness” criteria, and 71st on the business competitiveness criteria. Russia is ranked 79th in her GDP per capita, and 13th in terms of foreign investment. On all these criteria, the USA, for example, is ranked first.

This brings the question if the re-orientation of the Russian policy to the east is worth it. This is a rhetorical question since a new economic colossus is being born in the east; at some point China might be tempted to declare its global geopolitical claims and (in the long run) to even seek the change of the geostrategic status quo that has been established after the end of the Cold War.

Russian President Medvedev (left) and US President Obama at the last G8 Summit in Italy. Photo by EPA/BGNES

Is the political elite in Moscow going to agree to follow these very likely ambitions of its southeast neighbor? Is the Kremlin going to turn its back to the honest and peace-loving Europe in the name of a far more complex and unpredictable geopolitical game in the East? Here starts the answer of another question that you probably will not ask me – why a month ago the Russian President Dmitry Medvedev invited President Barack Obama in Moscow for a “restart” of the US-Russian relations…

What is the difference before the accession of the Baltic States to NATO and the potential accession of Georgia and the Ukraine? Why do you say in your book that the Ukraine should be admitted to the EU before it is admitted to NATO?

Lithuania, Latvia, and Estonia have always been a part of Europe. Because of some unlucky circumstances, these countries ended up in the Soviet Union but their historical roots and traditions are far from the Russian ones. After the disintegration of the USSR, the peoples of those countries expressed their enormous desire for integration with Europe, and their NATO membership could not be disputed in any reasonable or legitimate way.

Ukraine’s situation is different. It is known that a large part of the population of this country is ethnically Russian. Only about a third of the population favors a membership in NATO, and therefore the nation is not consolidated on this matter.In Article 23 of the Declaration of the NATO meeting in Bucharest in April 2008, the Alliance assured the Ukraine that “those countries (i.e. the Ukraine and Georgia) will become members of NATO”.

However, with regard to the key strategic importance of Ukraine’s territory, I believe that it would be better if its integration started with a EU membership which is going to make the Ukraine a factual member of the family of Western democracies. This will give it the opportunity to add its military capacity to the efforts for the creation of a common European defense and security policy. The Ukraine has made important contributions to NATO missions, and that is why I believe that its EU accession is not only going to assert its international weight and self-confidence but it is also going to play to the role of a preliminary condition that will lead to a consensus in favor of the country’s membership in NATO.

The Declaration of the Bucharest meeting confirmed that Georgia was also going to become a member of the Alliance. The problem there is a different one. It is clear that after the war with Russia from August 2008 Georgia’s NATO membership will be delayed since many of the member states of the Alliance think that its admission would drag NATO into a conflict with Russia. The most notable proponent of this viewpoint is the German chancellor Angela Merkel who has put forth the argument that countries with unregulated conflicts with their neighbors cannot be members of the Alliance. I believe that this argument is wrong since it gives Russia the actual right of veto on Georgia’s membership in NATO.

The potential conflicts in Abkhazia and South Ossetia are a convenient foreign policy instrument that the Kremlin is using to pressure Georgia and to block its NATO accession. A few years ago Russia had the same approach towards the Baltic States. The Russians refused for a long time to ratify the agreements for their borders with Latvia and Estonia which hindered those countries’ membership in the EU and NATO. The moment these states were admitted to the EU and NATO, the Kremlin was no longer in any position to use this problem for its foreign policy goals, and the treaties were soon ratified by Moscow.

The potential conflicts in Abkhazia and South Ossetia are a convenient foreign policy instrument that the Kremlin is using to pressure Georgia and to block its NATO accession. A few years ago Russia had the same approach towards the Baltic States. The Russians refused for a long time to ratify the agreements for their borders with Latvia and Estonia which hindered those countries’ membership in the EU and NATO. The moment these states were admitted to the EU and NATO, the Kremlin was no longer in any position to use this problem for its foreign policy goals, and the treaties were soon ratified by Moscow.

The potential conflicts in Abkhazia and South Ossetia are a convenient foreign policy instrument that the Kremlin is using to pressure Georgia and to block its NATO accession. A few years ago Russia had the same approach towards the Baltic States. The Russians refused for a long time to ratify the agreements for their borders with Latvia and Estonia which hindered those countries’ membership in the EU and NATO. The moment these states were admitted to the EU and NATO, the Kremlin was no longer in any position to use this problem for its foreign policy goals, and the treaties were soon ratified by Moscow.

US Vice-President Joe Biden (left) and Georgian President Mikhail Saakashvili (right) in Tbilisi, July 2009. Photo by EPA/BGNES

Finally, the longer this situation continues, the more time the Kremlin is going to have in order to destabilize the government in Georgia. That is why today more than ever Georgia needs the support of the Western democracies. I think that his was the major political message of US Vice-President Joe Biden during his visit to Tbilisi last month.

There is also another idea regarding the Ukraine and Georgia which has been floating around, mostly in the analytical circles – associated membership in NATO. The associated membership can turn into a full membership depending on whether the respective applicant is able to fulfill the procedures and criteria required for a full membership.

Should Bulgaria terminate its participation into the large-scale Russian energy projects?

Russia has turned the production, transportation, and sale of energy resources into a specific type of strategy for exerting geopolitical pressure. There are enough examples for that. The termination of the gas supplies for Europe through the Ukraine last winter was very indicative. Bulgaria is 90% dependent on Russian energy resources. We should also add the Kozloduy Nuclear Power Plant, which was constructed as a Russian project and operates fully with Russian nuclear fuel. Bulgaria has no alternative sources of oil and gas, and our deposits are negligible.

Therefore, the priority of Bulgaria’s energy policy should be the finding of energy sources that can reduce as much as possible the country’s dependence on the Russian state monopolist Gazprom, governed by the Kremlin. In this context, we need to point out that the support for the Nabucco pipeline project, for example, does not mean that Bulgaria is giving up the Russian energy projects, it means seeking an alternative in order to reduce the above-mentioned dependence.

As far as the Burgas-Alexandroupolis oil pipeline project is concerned, according to environmentalists and business experts it is going to create a real environmental catastrophe, and is completely going to destroy tourism on Bulgaria’s southern Black Sea coast.

There is one thing about these large-scale energy projects that is extremely important – the full lack of transparency of the negotiations that the previous government had with the Russian side about our participation in them. These projects are often described as being of great strategic importance. That might be true but only the full transparency of those projects is going to show for who they are of such great strategic importance. I don’t think that is for Bulgaria.

What is the strategic benefit for Bulgaria to invest EUR 4 B in the construction of the Belene Nuclear Power Plant in a time of severe global economic crisis, especially if it has to borrow the money, i.e. to go into a large-scale debt? We should note here that according to experts on economic analysis of such nuclear projects, the price of the Belene NPP will reach EUR 12-14 B.

Bulgaria’s former PM Sergey Stanishev (middle) shakes hands with Russian Ambassador Yury Isakov at the Belene NPP construction site, September 2008. Photo by BGNES

a time of severe global economic crisis, the South Stream gas pipeline, the Belene NPP, and the Burgas-Alexandroupolis oil pipeline should be the last thing that the newly elected government in Sofia should be dealing with. The EU is working very seriously on trying to figure out how to rid itself of the monopoly of the Kremlin-controlled Gazprom because it can see very clearly the geopolitical motives behind this company’s actions. As a EU member, Bulgaria is obliged to follow this European position.

Finally, I would like to point out one more thing – neither South Stream, nor “Burgas-Alexandroupolis” are economically sound projects. The Russian economic experts know this very well, the politicians in Kremlin know it, too. Moscow put forth these projects during the term of a weak and corrupt government in Sofia that did not have a clear strategy for the development of Bulgaria, and for its European identity.

I am convinced that the main motive that can be seen behind the propaganda in favor of these projects is a geopolitical one.

After the warm relations between the Russian leadership and the government of Sergey Stanishev, supported by President Parvanov, what sort of a policy towards Russia do you expect from the new government of Boyko Borisov? How can this “warm” connection between Bulgaria and Russia be explained to the Western audience?

I expect that the policy towards Russia of the government will be pragmatic and will be based on Bulgaria’s national interests. Bulgaria has two key foreign policy priorities for which is has signed treaties turning it into a full-fledged member of two organizations – NATO and the EU. They define fully its foreign policy including its relations with Russia.

The Western democracies are not interested if we have a “warm”, “historic” or any other sort of a connection with Russia; they are interested to know if they can rely on Bulgaria as a strategic ally in NATO, and as a stable economic and political partner in the EU. This is why Bulgaria was admitted to those organizations, not because it had “warm” or any other relations with Russia.

JamesTown Foundation: Russia’s Far East Energy Dilemma

The Sakhalin-1 project

The Russian government began insisting in late July that gas from the Sakhalin-1 project must not be sold to China by its partners, including ExxonMobil, but instead diverted to meet the growing demand in Russia’s Far East provinces. Many observers were shocked by what they believed was yet another underhanded move by the Russian authorities to unilaterally break existing contracts (www.jamestown.org/blog, August 4).

While the final results of this conflict have not been decided, if Russia gets its way, the contracts will indeed be broken, but a greater share of the blame for this should also be shouldered by Russia’s Western partners in Sakhalin-1 -who failed to understand the energy crunch faced by Russian industry in the Far East and the unstable political situation in the region. ExxonMobil and others failed to realize that without cheap gas from Sakhalin Moscow was likely to face a full-scale rebellion in its most strategically important region.

The seminal document outlining Russia’s energy goals, “Russia’s Energy Strategy for the period up to 2020” openly stated:

“The Energy Strategy takes into account the main differences of the conditions of energy supply and the structure of fuel-energy balances of… Russian macro regions…The priority in the development of energy is given to the regions with the highest cost of energy sources and their low security (the Far East, Baykal region, North Caucasus, Kaliningrad region, Altai region, etc)” (Russia’s Energy Strategy for the period up to 2020).

This should have alerted Western companies that the Russian Far East was in dire need of gas if it were to develop and the most convenient source was Sakhalin.

Speaking at the annual oil and gas conference in the island’s capital of Yuzhno-Sakhalinsk Vladimir Kozlov, the head of Gazprom’s Sakhalin office, said that the growing demand for gas in Russia’s four far eastern regions would reach 13 billion cubic meters (bcm) by 2010 and further grow to 16 bcm and 19 bcm by 2015 and 2020, respectively (www.ruscham.com, www.jamestown.org/blog, August 4).

One 2005 study by OOO Niigazekonomika, Gazprom’s Research Institute, using data from Gazprom and Russian energy ministry information concluded that Russian domestic gas consumption was rising faster than projected in the “Energy Strategy of Russia to 2020” and by 2030 is expected to be approximately 654 bcm instead of the earlier estimate of 436 bcm. Despite this readily available information, ExxonMobil and other companies involved in the Sakhalin project appear to have ignored it – or did not bother to thoroughly research the problem, and hastily signed sales contracts with China for Sakhalin-1 gas.

Valery Nesterov, an analyst at Troika Dialog, said that despite a growing belief among investors that the government’s grip over resources is easing after deals with Total and Shell in recent months, foreign firms will often remain under pressure. “ExxonMobil does not have a free choice. Past experience shows that if [Moscow] has a strong desire, the foreign partner has to agree,” he said. The Khabarovsk-Vladivostok pipeline will run 1,460 kilometers. Nesterov estimates its cost at $2.9 billion to $4.4 billion. Linking Sakhalin Island’s gas resources to Vladivostok is an important priority for the Russian government which wants to maintain control over this important commercial and geopolitical center -a city which has been at the center of numerous anti-government demonstrations this year. These anti-government demonstrations have spread to such cities as Togliatti where automobile workers from the Avto VAZ plant recently staged a brief strike protesting against planned job cuts (www.labornotes.org, August 1). The Avto VAZ plant is the largest auto manufacturing plant in Russia, employing over 112,000 workers in three workshops in the plant. On August 1, workers at Avto VAZ called a strike in response to having received no reply from the company regarding their demands. The union called an end to the strike after four hours at several Avto VAZ shops (www.labornotes.org, August 1).

The Kremlin, however, understands the importance of the Russian Far East and will not hesitate to meets its energy needs at China’s expense in order to insure loyalty and peace in these four regions. On July 24, 2008 the Kremlin dispatched Deputy Prime Minister Igor Sechin to China in order to boost bilateral energy ties. Sechin reportedly reassured Chinese Premier Wen Jiabao that Russia was ready to work with China to fulfill bilateral agreements, and develop energy cooperation. Sechin also delivered a letter from Putin to Wen.

On July 26, Sechin and China’s Vice-Premier Wang Qishan initiated a “negotiation mechanism.” Energy cooperation plays an important role in strategic cooperation between China and Russia, Wang said. “The launch of such a mechanism indicates that the China-Russia energy cooperation has entered into a new phase,” Wen Jiabao reportedly commented. He also encouraged more progress in crude oil trade, joint development of new deposits, construction of oil and gas pipelines, as well as refining and chemical production facilities (Interfax, RIA-Novosti, Xinhua, July 26-27).

The diversion of Sakhalin gas contracted by China from Sakhalin-1 to the Russian Far East will undoubtedly upset the Chinese leadership – which appears to be frustrated by Russian behavior – and undermine the highly touted “Russian-Chinese strategic alliance” which Putin has actively promoted. It is possible that a conflict over gas supplies in the Russian Far East might turn against Russia and improve Sino-U.S. relations.

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