RUSSIAN ENERGY STRATEGY IN THE ASIA-PACIFIC IMPLICATIONS FOR AUSTRALIA RUSSIAN ENERGY STRATEGY IN THE ASIA-PACIFIC IMPLICATIONS FOR AUSTRALIA EDITED BY ELIZABETH BUCHANAN Published by ANU Press The Australian National University Acton ACT 2601, Australia Email: [email protected] Available to download for free at press.anu.edu.au ISBN (print): 9781760463380 ISBN (online): 9781760463397 WorldCat (print): 1246214161 WorldCat (online): 1246214035 DOI: 10.22459/RESAP.2021 This title is published under a Creative Commons Attribution-NonCommercial- NoDerivatives 4.0 International (CC BY-NC-ND 4.0). The full licence terms are available at creativecommons.org/licenses/by-nc-nd/4.0/legalcode Cover design and layout by ANU Press This edition © 2021 ANU Press Contents Acronyms . vii Figures . xi Tables . .. xiii Introduction . 1 Elizabeth Buchanan Part 1: An Asia‑Pacific Energy Outlook 1 . Energy Outlook in the Asia‑Pacific . 15 Shoichi Itoh 2 . Russia’s Foray into Asia’s Energy Market . 31 Morena Skalamera Part 2: Russian Foreign Energy Strategy 3 . Russian Grand Strategy and Energy Resources: The Asian Dimension . 57 Jakub M . Godzimirski 4 . Energy and Russian Great Power Post-Crimea . 85 Peter Rutland 5 . Russian Energy Firms in the Eastern Market . 105 Keun-Wook Paik Part 3: Australia’s Asia‑Pacific Energy Interests 6 . Unpacking Australia’s Energy Strategy for the Region . .. 143 John Blackburn 7 . Future of Russian Coal Exports in the Asia‑Pacific . 155 Stephen Fortescue Part 4: Russian Energy Strategy and the Future Ahead 8 . Sanctions and Moscow’s Adaptation Strategy . 183 Maria Shagina 9 . The 2019 Energy Security Doctrine and Debates around It in Russia . 201 Tatiana Romanova Conclusion . 219 Elizabeth Buchanan Contributors . 223 Acronyms ADF Australian Defence Force ANU The Australian National University APC African, Caribbean and Pacific Group APEC Asia-Pacific Economic Cooperation APR Asia-Pacific region ASEAN Association of South-East Asian Nations BAM Baikal–Amur Mainline BGG Beijing Gas Group BRI Belt and Road Initiative CAATSA Countering America’s Adversaries through Sanctions Act CAGP Central Asian Gas Pipeline CBR Central Bank of Russia CDB China Development Bank CDU Central Dispatching Unit CNOOC China National Offshore Oil Corporation CNPC China National Petroleum Corporation COOEC China Offshore Oil Engineering Company COSCO China Ocean Shipping Company DSME Daewoo Shipbuilding & Marine Engineering ECT Energy Charter Treaty EIA Energy Information Administration EPC engineering, procurement and construction ESD Energy Security Doctrine ESPO Eastern Siberia – Pacific Ocean vii RUSSIAN ENERGY StrategY IN THE ASIA-PACIFIC ETRI Economic and Technology Research Institute EWP Energy White Paper FID financial institutions duty IDF Industrial Development Fund IEA International Energy Agency IEEJ Institute of Energy Economics, Japan IR International relations JBIC Japan Bank for International Cooperation JOGMEC Japan Oil, Gas and Metals National Corporation LNG liquefied natural gas MOL Mitsui OSK Lines NATO North Atlantic Treaty Organization NDRC National Development and Reform Commission NERA National Energy Resources Australia NESA National Energy Security Assessment NPS new policies scenario NSR Northern Sea Route OECD Organisation for Economic Cooperation and Development OPEC Organization of the Petroleum Exporting Countries POS Power of Siberia PRRT Petroleum Resources Rent Tax RDIF Russian Direct Investment Fund RFE Russian Far East RPR Reserves–Production Ratio SOE State-Owned Enterprise SWIFT Society for Worldwide Interbank Financial Telecommunication VGK Vostochnaia gornorudnaia kompaniia viii ACRONYMS Measurement bcf billion cubic feet bcf/d billion cubic feet per day bcm billion cubic metres bcm/y billion cubic metres per year b/d barrels per day km kilometre mb/d million barrels per day mmbtu million metric British thermal units mmt million metric tons (tonnes) mmt/y million metric tons (tonnes) per year mt million tons mtoe million tons of oil equivalent mt/y million tons per year MW megawatt tcm trillion cubic metres tmt thousand metric tons (tonnes) ix Figures Figure 3.1: Russian energy actors on a map of reputational power. Annual rankings of top 100 political figures presented by Nezavisimaya Gazeta (NeGa) between 2007 and 2018 ........65 Figure 3.2: Frequency of term ‘energy’ in Russian doctrines, 2000–18 ..........................................66 Figure 3.3: Russian energy-related doctrines published between 1993 and 2019. .69 Figure 3.4: Share of petroleum revenue in the Russian state budget ..69 Figure 5.1: China’s crude oil imports by country ...............107 Figure 5.2: Russia’s oil and gas export to Asia ..................113 Figure 5.3: Gazprom’s POS 1 and Altai gas to China ............116 Figure 5.4: China’s gas imports by pipeline and LNG ............119 Figure 5.5: Pipeline gas supply options to the Korean Peninsula ....121 Figure 5.6: Chinese LNG and pipeline gas import growth ........123 Figure 5.7: Novatek’s Yamal and Gydan peninsulas’ gas reserves ....126 Figure 5.8: LNG cost breakdown by origin and destination .......127 Figure 5.9: Novatek’s LNG logistics to Asia ...................133 Figure 5.10: LNG transportation costs: East versus West routes ....133 Figure 5.11: LNG transit via Northern Sea Route subject to icebreakers commissioning ..........................134 Figure 6.1: Australian fuel market trends .....................145 Figure 6.2: LNG exporting countries and proved gas reserves ......152 xi Tables Table 3.1: What makes Russia important in energy terms and what makes energy important in the Russian strategic context? ......63 Table 3.2: Instruments and tools in Russian energy strategy ........74 Table 4.1: Key pipeline projects since 2000 ....................88 Table 5.1: China’s crude oil imports, 2000–17 (mt/y) ...........108 Table 5.2: China’s crude oil from Russia and Kazakhstan (mt/y) ....108 Table 5.3: Chayandinskoye and Kovyktinskoye output (bcm/y) ....116 Table 5.4: China’s long-term gas supply demand projection .......124 Table 5.5: LNG cost breakdown by origin and destination (US$/mmbtu) .....................................127 Table 5.6: LNG project competitiveness in US$/mmbtu, high-income market test—Japan, Korea, Taiwan or China (JKC) 2025 (US$/mmbtu). 128 Table 5.7: List of 15 icebreaking LNG carriers .................132 Table 7.1: Forecasts in the Program for the Development of the Coal Industry of Russia for the Period to 2030, with outcome in 2018 (mmt). 156 Table 7.2: Output by selected regions as forecast in the Program for the Development of the Coal Industry of Russia for the Period to 2030, with outcomes in 2013 and 2018 (mmt) ............157 Table 7.3: Exports to the Asia-Pacific from selected regions as forecast in the Program for the Development of the Coal Industry of Russia for the Period to 2030, with outcomes in 2013 and 2018 (mmt). 158 xiii RUSSIAN ENERGY StrategY IN THE ASIA-PACIFIC Table 7.4: Output and exports from Sakhalin (mmt) ............161 Table 7.5: Russian coal export destinations, 2018, top five worldwide and other Asian destinations (mmt) ............161 Table 7.6: Output of Urgalugol’, forecast and actual (mmt) .......163 Table 7.7: Distances from coal-producing regions to Shanghai (’000 km). 171 xiv Introduction Elizabeth Buchanan Given Australia’s lack of energy security strategy, it is not surprising that the country is void of institutional knowledge and know-how of Russian foreign energy strategy. The ‘lucky country’ as it were, relies entirely on sea lines of communication to the north to supply fuel and to export Australian coal and natural gas. Australia has entered the 2020s as the world’s largest liquefied natural gas (LNG) exporter; however, maintaining complacency in Canberra’s current export activities will ultimately lead to a long-term security crisis. Australia lacks institutional insight into Russian energy interests in Canberra’s prime energy market—the Asia-Pacific. This book seeks to fill this knowledge gap by providing policymakers, academics and tertiary-level students with up-to-date insight and analysis of Russia’s foreign energy strategy in the region. By comparing and contrasting this to Australia’s energy security over-reliance throughout the Asia-Pacific region (APR), this book highlights serious energy security concerns on the not too distant horizon. The concept of energy security is an age-old challenge for national strategy and, for Daniel Yergin, it consistently elicits ‘new answers’.1 A constantly evolving issue, energy security is shaped by both internal state forces and external international ones. With an array of definitions and priorities, most experts at least agree on the fact that global energy demand is continuing to increase in step with dwindling known supplies of existing energy resources. Put simply, ‘easy access’ to ‘known’ or ‘proven’ energy reserves (namely hydrocarbons—oil and natural gas) is getting harder. Existing wells are dry and explored energy frontiers are in technically challenging and financially prohibitive spaces, such as the 1 Daniel Yergin, ‘Ensuring Energy Security’, Foreign Affairs, March/April 2006, doi.org/10.2307/ 20031912. 1 RUSSIAN ENERGY StrategY IN THE ASIA-PACIFIC offshore Arctic Ocean. Some of the ‘new answers’ to this challenge include renewable energy sources and the development of non-traditional energy ventures. While there are various definitions of energy security, common components include: • secure, uninterrupted supply of energy resources