Russia Warns Europe It Could Divert Energy Supplies to Asia Instead

By Sergei Blagov | July 7, 2008 | 8:17 PM EDT

Moscow ( - Russia begins construction of a major oil pipeline from eastern Siberia to the Pacific on Friday, a project that signals a shift toward Asia and away from Europe.

The planned 1,400 mile-long pipeline, estimated to cost $11.5 billion, will stream oil to Pacific Rim markets, including China and Japan, when it is completed by the end of 2008.

The project has been controversial, given its planned route near the shores of Lake Baikal, the world's largest body of fresh water.

President Vladimir Putin on Wednesday unexpectedly gave in to environmentalists' demands and ordered a change in the route.

He also accused the West of unfair practices in global energy transactions.

Russia should look to the East for energy partnerships, he said, because Russian companies were facing discrimination and unfair competition elsewhere.

"Despite a huge demand for energy, we face limitations under all kinds of pretexts, in the north, south and the west," Putin said, adding that Russia would now prioritize the Asia-Pacific region.

In China last month, Putin pledged to increase both oil and natural gas exports. Large-scale gas exports will also require new carriers, and two gas pipelines to China are being planned by 2011.

Russia's eastward focus is seen here as designed to send a message to European consumers that if they do not like Russia's sales terms, Russia can simply redirect exports to China.

Last January, giant gas monopoly Gazprom briefly cut natural gas supplies to Ukraine, in what was widely seen as an attempt by Moscow to apply political pressure on the former Russian ally. At the time, European Union leaders questioned Russia's reliability as a supplier of energy.

Semyon Vainshtok, head of Russia's oil pipeline monopoly Transneft, said this week that once Russia had reoriented its export focus to China, South Korea, Japan and Australia, it could reduce crude exports to Europe.

The E.U. is taking note. A spokesman for E.U. Energy Commissioner Andris Piebalgs said last week that recent statements from Russia underlined "our need to diversify both the origin of our supplies and our supply routes."

Russian officials are eager to convince potential Asian importers that Siberia has sufficient reserves to cater to the region's fast-growing energy needs.

According to official Russian estimates, eastern Siberia has up to 10 billion tons of recoverable oil reserves (about 15 percent of Russia's total oil reserves), and 40 trillion cubic meters of gas (nearly 20 percent of the country's total).

However, tapping these resources will require substantial investment, and Russia has yet to secure any firm investment pledges from potential Asian importers.

The Asian energy "game" also has drawn in Central Asia's resource-rich republics.

Kazakhstan President Nursultan Nazarbayev is looking to send crude from his country's oilfields westward, via Russia to Europe, as well as eastward, to China.

Another former Soviet state in Central Asia, Turkmenistan, is also selling gas to Russia while lining up to sell gas to China once a pipeline eastwards is commissioned in 2009.

In pursuit of Turkmenistan gas riches, China and Russia have both tended to ignore the repressive nature of President Saparmurat Niyazov's regime.

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