Mr. Victor I. Ishaev
Chairman
Interregional Association for Economic Cooperation between the Territories of Zabaikalye and the Far East
The Pacific Ocean unites Russia and all Asia Pacific Region states into common political, economic and ecological systems. Everything taking place here practically always is a matter of interest for Russia.
Despite the 1998 year crisis North-East Asia is a most developed and still continuing to develop region of the Pacific. The states of the region are and will in the foreseeable future remain important participants of the economic, political and social development processes not only in the APR but also in the whole world.
The economic and political interaction with North East Asia states and the whole of the APR is extremely vital for Russia. Our country cannot be fully assigned to either Europe or Asia though some choose to think one way or another. It is a Eurasian state with its western part learning rather towards Europe while its eastern part that is Siberia and the Far Eastern regions is gravitating more towards Asia. Under these conditions the Far East and Zabaikalye in fact are Russia's Pacific frontier providing a direct exit to the Pacific Ocean and ensuring its global interests in the Asia Pacific Region. We as those living in the Far East share this view point.
At present the Russian Far East geopolitically and resourcewise plays and extraordinarily essential role for the country. Its total area of 7 min sq. km or over 40% of Russia's area populated by 8 min people serves as the production ground for 6% of the Gross Domestic Product, the per capita value being over Russian average. Thanks to natural resources of the Far East and Zabaikalye Russia leads the world in the primary industry sector. The region's share of the country's water biological resources is almost a half, and its hydroenergy resources are one third of the country's total. The region can boast 30% of Russian coral reserves, 20% of carbon resources, 25% of timber, considerable non-ferrous and rare earth metal reserves. The extracting industry providing for over 30% of Russia's total raw production is the basis of regional economy. The regional powerful machine building complex is based on high technologies especially in military equipment manufacturing.
Today we have every reason to say that the regional economy starts going out of the 1998 year finance and economy crisis. The industrial production decline rate has sharply fallen and the production fall came to its minimum recently. The corresponding Russian national indicators are somewhat worse. In 1999 5 subjects of this RF region (the Khabarovsky krai, the Sakha Yakutia Republic, the Magadanskaya and Sakhalinskaya oblasts and the Jewish Autonomous Region) registered a significant growth from 1998. The electric power production rates, timber production, oil and its product output, coal production, ferrous and non-ferrous metallurgy production have all grown in the Far East. The investment influx into the main assets is recorded at almost 105%.
The Khabarovsky krai managed to demonstrate sustainable positive results and the industrial production growth rate here is 109.0%. The gross regional product in absolute form was 153% against the previous year or 103.3% in comparable prices. A steady growth is registered in basic industries of economy : 7.8% in electric power industry, 18.4% in oil processing, 31.7% in timber and timber processing industry and 9.2% in transportation. The total volume of capitalization out of companies' own assets into economy and social sphere was 110% against the previous 1998 year.
Large projects of both regional and Russian national levels, are under way. The Sakhalinskaya oblast oil and gas projects start opening. The combined automobile and rail bridge across the Amur river at Khabarovsk is in the second stage of construction. The highway between Chita, Khabarovsk and Nakhodka is being constructed. The infrastructure is developing, hotels are being built, new telecommunication lines open, air routes between the region of the Far East and Zabaikalye and the APR states continue operating.
The Far East and Zabaikalye Russian Federation subjects undertake active measures to improve the investment environment especially in local legislation. Thanks to persistence of local administrations a package of Federal laws was adopted, they deal with production sharing and provide for wider opportunities for foreign investors to participate in natural resources exploration of the Far East and Siberia.
The concept of Russia's faster integration into the APR in the 21st century is based on a mutually beneficial cooperation with North East Asia states. Of greatest importance here is drafting and operation of basic infrastructure projects of international scale based on the new economic and engineering infrastructure that connects the states and regions primarily in energy.
Natural resources have always been and will be in the future the foundation for international cooperation of the Russian Far East with North East Asia states. At present the focus of cooperation efforts is shifting more towards energy. The forecasted economic growth rates in the APR (foremost in the Chinese People's Republic and India) will lead to Asia using over a half of the world's energy resources in the 21st century. Already by 2020 these states may become their main consumer. In particular one can note that when the energy consumption rate of the CPR reaches the Latin American level its demand for oil will take up about 20% of the world oil consumption level and will exceed the total European needs of the Organization for Economic Cooperation and Development member states. In general the demand for energy resources in Asia as well as in the whole world will still be satisfied out of the traditional energy sources primarily, that is coal, oil and natural gas.
In energy sector, no serious problems are forecasted only as to the supplies of coal to Asia states since large coal deposits are known here. As to natural gas, with a considerable increase of its role in energy supplies to Asia one can hardly count on the fact that the gas deposits under operation in different regions of the world now will solve the problem. North East Asia states will face especially big difficulties in gas supplies.
If in 1998 gas covered only 9% of the APR total energy needs, then already in the near future, we foresee an annual consumption growth rate of 5-6%. Japan, the Korean Republic, China will be the main natural gas importers. Thus it is expected that the consumption of natural gas in Japan's energy sector will by 2020 reach the level of 10 billion CUM. The gas consumption rates in the Korean Republic may be this year 38 billion CUM against the 12 billion today. The 2010 year China's demand for gas may be as much as 120 billion CUM.
Russian Federation has great opportunities to satisfy the needs of this vast region in natural gas. As follows from Graph. 1 Russia's share in the world natural gas reserves is 35.4%
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Our state leads the world in natural gas production (Graph.2).
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The primary potential resources are estimated at 235 trillion CUM. The share of recoverable gas reserves in the country is up to 21% or 48.9 trillion CUM (Graph 3). Russia has a vastest in the world shelf area of about 6 million sq. km (20% of the world shelf area), where the oil and gas reserves are estimated at 100 billion ton of reference fuel.
A convenient geographic location of the Russian Federation, gigantic natural gas reserves, very rich experience in operating the super-long reliable transportation lines help Russia in the 21st century satisfy both traditional gas consumers in Europe and the new ones in APR.
Today about ten gas pipeline projects are known (Map 1). The most promising by way of gas exports to the APR states seems the gas pipeline from the Kovyktinskoye field in the Irkutskaya oblast through Mongolia to China and then to the Korean Republic. The gas pipeline from the deposit in Yakutia through Mongolia to China also seems feasible. Further adding the Krasnoyarsky krai to the raw base of the two to form a united system will ensure stable and secure gas supplies to both Russian Far East regions and for export.
The Sakhalin projects in which the American and Japanese companies participate, are very much oriented towards exports of natural gas. Sakhalin-1, Sakhalin-2 and other Sakhalin projects allow to plan for the natural gas extraction volumes of up to 26 billion CUM in 2005 and by the year 2010 up to 46 billion CUM. Sakhalin gas can be shipped to North East Asia states as is seen from the Map 1 both via pipeline and in liquefied form.
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The cost of any of the above projects varies from 1 to 20 billion dollars US each. Financing such large scale projects can be effected only through combined effort of several states and with the participation of international financial organizations. In our opinion, the Asia Development Bank must play a greater role in financing these projects.
The fast economic development of the Asia Pacific states will cause the rapid grows of the oil consumption too. Russian Federation has every grounds to one of the main suppliers of crude oil to this states. Our country's share in the world total oil reserves is 12% (Graph. 4).
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In realizing this potential it is important that 72% of the forecasted oil resources are in Siberia and the Far East (Graph. 5). The raw base of only Eastern Siberia and the Sakha Republic allows for oil exports to Asia Pacific Region states of up to 12.1 - 14 million tons a year, and the Sakhalin shelf oil production may increase Russia's export opportunities up to 35 million tons a year.
An important issue for future is the satisfaction of the NEA economy needs in electric power. According to the Asia Pacific Energy Research Center the electric power consumption rates of North East Asia in the new millennium will continue on a steady rise. These estimates also show that by 2010 depending on the scenario the energy consumption rates will increase 50-56% against the 1995 level. Practically every forecast relies on the anticipation of more electric power consumption rather than fuel.
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In this respect new rich options open up for Russia's cooperation with the states of the region. Russian eastern regions possess considerable energy reserves now and these will grow in the near future. Thus only the Irkutskaya and Chitinskaya oblasts as well as the Krasnoyarsky krai by 2010 will have the reserves of up to 25-30 billion kWh (kilowatt per hour) annually. Besides, there are other options for a greater electric power production output, including for exports. Firstly, due to the gas supply of southern Far East regions, we can sharply increase the capacity and productivity of energy systems in the Khabarovsky and Primorsky krais and the Sakhalinskaya oblast. Secondly, great power reserves will appear after the commissioning of the Bureiskaya hydropower station. Thirdly, switching the Sakhalin energy system in to the United Vostock power system will lead to additional power reserves.
Thus the Russian Far East and Eastern Siberia have a potential for energy exports to the neighboring states of North East Asia in the amounts of up to $50 billion kWh (kilowatt per hour) electric power annually by creating an international energy system of Russia and NEA states (Map 2). But one has to stress that Russia's national strategy in energy policy in North East Asia is not restricted by export and import projects. From Russia's viewpoint, larger energy projects in Siberia and the Far East must be targeted primarily at energy cooperation in the region. In this the following three goals are set:
* support to North East Asia regional development;
* strengthening energy and economic security in North East Asia;
* assistance to structural reforms in regional economies.
At the first stage of reforming the international energy system between Russia and North East Asia states it is necessary to start networks of power transmission lines of different voltage classes in border regions. We have first experience in this field, already today two export TLs are operating in the Amurskaya oblast. Our specialists have studies about 20 prospects for development, in the first place those oriented at China and Mongolia. The dc bridge from the Irkutskaya oblast to China can serve as an example, it includes the construction of a 600 kV (Kilovolt) dc transmission line (TL DC) about 2500 km long to Beijing area. The delivered wattage will be 3 thud MW (Megawatt). The cost of the project is estimated at 1.5 billion dollars US.
Still more appealing is the idea of a power bridge between the Sakhalinskaya oblast and Japan. This country for the last two decades has been experiencing a steady rising demand for electric power at the level of 4% annually which leads to the fact that by 2000 the consumption has gone over 1000 billion kWh (kilowatt per hour) annually. It is expected that by 2010 this indicator will exceed 1120 billion kWh. Only a few years ago one expected the wattage growth to be covered from the new, primarily nuclear stations to be commissioned. Still as the referendum about the nuclear station at Maki in the Niigata prefecture has shown, the population strictly opposes the construction of the new nuclear station, this branch of Japan's energy sector will face more and new problems. Moreover, a chain of emergencies registered in recent years on the Japanese nuclear facilities can result in the operating nuclear stations' removal from service.
In this situation in our opinion the power bridge between Sakhalin and Japan gets a sizable shape. Early 21st century the Sakahlin shelf gas operations make it possible to start energy exports of 4-5 thud MW capacity or up to 20 billion kWh (Kilowatt per hour) annually. Map 2 shows all possible routes for dc power exports. The following will serve as the main components of the power bridge:
1. A gas power station 4 thud MW capacity;
2. 600 kV (kilovolt) high-voltage dc transmission line (TL DC);
3. 2 or 3 auxiliary dc stations 600 kilovolt each;
The estimated cost of the project is 10 billion US dollars.
The Vostok United power system of the RF will be included in the power drige at the next stage. Under such measures due to a difference in maximum winter load in the Vostok United power system and the maximum summer load in Japan, the intersystem power exchange of 1-2 thud MW becomes a reality.
Further growth of power exports from the Vostok United power system to Japan and other North East Asia is attainable from Southern Yakutia hydro stations that are planned on the two Aldan river tributaries, the Uchur and the Timpton. The planned annual capacity of the new hydrostations will be 20 billion kWh.
The electric power can be shipped also from the new hydro stations through a 1800km-long 600 kV TL DC with a cable sea bridge to Hokkaido or to Honshu. The preliminary estimates show that the hydro power complexes with the TL and the auxiliary stations will take about 12 billion dollars in the construction.
The above projects are only partially competing with the oil and gas pipeline projects but to a substantial degree they are independent support projects.
The two directions mentioned can in future create the energy and economy infrastructure for international cooperation which will add to the appearance and strengthening of economic interdependence of regional states, and will promote further political, sociocultural and other relations between them. Not just the dependence of importers from exports of energy resources will be formed but what is more important, a system of mutual obligations and mutual responsibility will emerge that can become an important component of stabilization of the political and economic situation in all the Pacific Region.
The energy projects in the far eastern regions of Russia will play a great role in all the North East Asia economy structure. Their structure effect lies in the following:
in the diversification of energy consumption through opening the regional gas and electric power markets and through stronger competition among manufacturers of different fuel and energy types;
in working out international universal NEA oil, gas and electric power networks;
in working out the universal transparent non-discriminatory regulations allowing investors to exploration of oil, gas and power projects;
in the formation of a universal transparent access for the oil, natural gas, electric power manufacturers to the oil and gas transportation networks and to power networks.
Energy projects present huge opportunities for join effort, including financial opportunities of both government organizations and private electric power, gas and oil sector as well as financial organizations in practically Asia Pacific Region states. It is on this foundation that we see the way to achieve a great degree of improvement in the economic, social and political situation not only in the Russian Far East but also in the whole of the region. Moreover so as such strategies can foster constructive and long-term international cooperation in various spheres of North East Asia region.