Russian Oil Route Will Open to China

The leaders of China and Russia are due Monday to celebrate the completion of the first oil pipeline between the giant neighbors, heralding a new era of energy cooperation and another symbolic step in the eastward shift in the balance of global economic power.

Hu Jintao, China’s president, and his Russian counterpart, Dmitry Medvedev, are scheduled to attend a ceremony in Beijing to mark the opening of the Chinese section of the pipeline, which stretches from Skovorodino in eastern Siberia to Daqing in northeastern China.

With the Russian section completed last month, Russian oil is expected to start flowing later this month to China, which will receive 300,000 barrels per day for the next two decades under a $25 billion loan-for-oil agreement struck last year.

The pipeline’s completion symbolizes a new phase of relations between Russia and China—now respectively the world’s biggest oil producer and biggest energy consumer—after decades of mutual distrust dating back to a bitter row over Communist ideology in 1956.

It also reflects a shift toward closer commercial and political ties between two of the world’s largest emerging economies after two decades in which relations were largely restricted to Russian arms sales to China, and opportunistic anti-American cooperation in international bodies.

Driving the relationship now is Russia’s desire to divert more of its energy exports away from Europe, its traditional market, and into China and other fast-growing Asian economies. Beijing wants to improve its energy security by diversifying sources and supply routes.

The pipeline is expected to double Russian oil exports to China—now transported mainly via a slow and expensive railway route—and to make Russia one of China’s top-three crude-oil suppliers alongside Saudi Arabia and Angola.

Messrs. Hu and Medvedev also are expected to discuss a gas-supply deal, which Russia says could be finalized next year, and an agreement last month to build a $5 billion joint-venture oil refinery in China’s eastern city of Tianjin.

Also last month, China agreed to lend Russia an additional $6 billion in exchange for increased coal supplies for the next 25 years.

The flurry of deals has raised fears in Russia that it could become little more than an energy and raw-materials supplier for China, while some experts in Beijing worry that Moscow could use the new pipeline as a foreign-policy tool—as it has used its gas supplies to Europe.

“Given Russia’s record, China will still be reluctant to allow it to become the major supplier,” said Hooman Peimani, head of energy security and geopolitics at the Energy Studies Institute in Singapore.

Both sides have lingering suspicions about each others’ long-term ambitions, and Russia worries particularly about Chinese economic influence in, and migration to, its sparsely populated far eastern region.

Yet political ties have improved rapidly in recent years, with the two countries carrying out large joint military exercises since 2005, and resolving a four-decade dispute over their vast land border in 2008.

They now share common ground on a range of issues, including security cooperation in Central Asia, the establishment of a global reserve currency to replace the dollar, and reform of international financial institutions.

Bilateral trade grew to almost $60 billion by 2008 from about $5 billion in 2000 and is expected to reach a similar level this year, after slumping in 2009 amid the global economic crisis. Russia is also due to start trading in Chinese yuan against rouble by the end of 2010 in a step toward settling bilateral trade in national currencies.

The driving force behind the improving ties, however, is a convergence of energy interests.

The pipeline plan was driven by Russia’s desire to wean itself off European markets, partly because of political confrontations over the past decade, and to seize a share of the growing Asian market from the Organization of the Petroleum Exporting Countries.

The Daqing pipeline is a spur from Russia’s longer East Siberia Pacific Ocean pipeline, designed to stretch to Russia’s far eastern coast and to feed the Japanese, South Korean and other Asian-Pacific markets.

For China, the pipeline fits its strategy to secure new energy sources and alternative delivery routes to imports by sea from the Middle East that make up the bulk of its supply and could potentially be cut off by a naval blockade in the Straits of Malacca.

An oil pipeline to Kazakhstan was built in 2006 and expanded last year, and a gas pipeline from Turkmenistan, another former Soviet republic, was opened last year.

China also began building an oil-and-gas pipeline through Myanmar this month, and is considering building an oil pipeline through Pakistan.

Russian Prime Minister Vladimir Putin summed up the significance of the Russia-China pipeline at a ceremony last month marking the completion of the 2,100-kilometer Russian section.

“For China, these are stable deliveries to the country’s energy balance, and for us an exit to new promising markets and in this particular case, to the expanding Chinese market,” he said.