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Japan woos Russia for Siberian oil
By Shihoko Goto
UPI Senior Business Correspondent

TOKYO, Jan. 12 (UPI) -- The quest for oil may well bring Japan and Russia closer together, as Japanese Prime Minister Junichiro Koizumi concluded his four-day visit to Russia by calling for bilateral cooperation to develop an oil pipeline extending over 2,485 miles from Siberia to Japan.

Japan and Russia have yet to sign a peace treaty after the end of World War II, largely due to an ongoing dispute over a smattering of islands off the coast of Siberia, north of Japan. While the so-called Northern Territories continue to belong to Russia, the Japanese government has consistently argued that they were taken unfairly from Japan in 1945. While hopes that the dispute over the islands would be settled once and for all during Koizumi's visit to Russia last week were dashed, Koizumi's call to Russian President Vladimir Putin to develop an oil pipeline jointly is seen by many analysts as a breakthrough in relations between the two countries, especially as Koizumi's predecessors have largely shrugged off seeking closer ties with Russia without coming to closure about the Northern Territories.

Indeed, Koizumi's Chief Cabinet Secretary Yasuo Fukuda has said the potential construction of a Siberia-to-Japan pipeline would be a "pillar of Japan-Russia economic cooperation."

But in the end, Koizumi returned to Tokyo empty-handed.

Japan's Ministry for Economy, Trade, and Industry stated that Russia has estimated that if the project were to ahead, it would cost about $5 billion. The pipeline would run from Angarsk, west of Lake Baikal, to Nakhodka on the Sea of Japan, and transport about 1 million barrels per day. The problem is, however, that the agreement is not yet concrete, and the possibility remains that it may fall through, not because of diplomatic disputes but because of spats among rival Russian oil companies vying for the development of different pipelines.

If an agreement to provide Japan with petroleum had been signed, Putin's government would have been able to secure much-needed cash, and Japan would have rested easier with the knowledge that a pipeline from Siberia would cushion the nation from the blows of potential difficulties in securing oil from Arab countries in the future. But a Japanese government source said that the plan faced difficulty in securing bilateral support largely because the Russian government faces internal debate over choosing between the Siberia-Japan pipeline planned by Transneft, a state-controlled company on the one hand, and a project by Yukos, an oil group which has planned a project to supply the Siberian oil to China through a pipeline extending 1,491 miles at a cost of $1.8 billion on the other. Moreover, the Japanese government source said there may well be a third alternative, whereby Russia extends its Siberian pipeline to South Korea, instead of Japan.

Koizumi made clear in his news conference at the conclusion of his Russia visit Sunday that the a pipeline ensuring oil supply to Japan would boost not only political, but also economic ties between the two countries. Certainly, it is clear that securing oil from Russia is vital to Japan's national interest, particularly in light of a potential attack on the United States disrupting oil supply from the Middle East. Moreover, Japanese oil companies have already taken steps before the latest agreement to have a stake in petroleum-rich Russia, though bilateral diplomatic relations have made it difficult for the Japanese to be as aggressive in pursuing contracts compared to other nations.

Japan is the world's fourth-largest energy consumer, and its supply largely comes from overseas sources, with virtually no oil reserves of its own. Granted, even the United States admits Japan is one of the most energy-efficient countries in the world, but even then, the country cannot survive without a steady supply of petroleum. Currently, the bulk of the 5.44 million barrels it consumers per day is imported from OPEC member countries, including Saudi Arabia, the United Arab Emirates, and Qatar. In recent years, however, Japanese companies have taken steps to tap into the resources of nations formerly forming part of the Soviet Union. For instance, Itochu Corp., Teikoku Oil Co., and Japan Petroleum Exploration Corp., amongst others, clinched a deal to pump and purchase oil from Azerbaijan in 1998. Japan has also began looking to China for its oil supply, and the Chinese government already supplies some light oil used in power plants, while Indonesia is also a not insignificant provider of oil to Japan.

Government officials have made clear that should Russia agree to develop the Siberia-Japan pipeline, the Japanese government would be prepared to finance the project through the Japan Bank for International Cooperation, a public agency.

As for private sector involvement from the Japanese side, no specific names have been mentioned, and companies have been reluctant to make any public comments on the project, given the continued uncertainties about whether it will actually go through. But some countries are already actively involved in digging for oil in Siberia, usually as partners with non-Japanese countries. For example, trading company Mitsui & Co. has a 25 percent stake in a project led by Royal Dutch Shell, which owns 62.5 percent in the Sakhalin Energy Investment Co. The project, which has already cost $1.1 billion and expected to require another $9 billion for completion, is already producing about 90,000 barrels a day. Mitsubishi Corp., another trading company, also has a 12.5 percent stake in the production project.

Should the government-approved Siberia pipeline go ahead, companies such as Mitsui and Mitsubishi that already have experience and an extensive network in the area are expected to be deeply involved.

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