Identifier
Created
Classification
Origin
06TOKYO6785
2006-11-30 08:09:00
CONFIDENTIAL
Embassy Tokyo
Cable title:  

RUSSIA OIL SEMINAR REVEALS DIFFERING VIEWS ON

Tags:  PREL PGOV ENRG JA RU 
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VZCZCXRO2265
RR RUEHFK RUEHKSO RUEHNH
DE RUEHKO #6785/01 3340809
ZNY CCCCC ZZH
R 300809Z NOV 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8770
INFO RUEHBJ/AMEMBASSY BEIJING 5060
RUEHMO/AMEMBASSY MOSCOW 1398
RUEHFK/AMCONSUL FUKUOKA 9033
RUEHNH/AMCONSUL NAHA 1521
RUEHOK/AMCONSUL OSAKA KOBE 2461
RUEHKSO/AMCONSUL SAPPORO 0071
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 006785 

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DEPT PLEASE PASS TO EB/ESC/IEC/ENR:PHAYMOND,
EB/ESC/IEC:SGALLOGLY, EB/ESC/IEC/ENRB:JWECKER,
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E.O. 12958: DECL: 11/28/2016
TAGS: PREL PGOV ENRG JA RU
SUBJECT: RUSSIA OIL SEMINAR REVEALS DIFFERING VIEWS ON
RUSSIAN ENERGY POLICY


Classified By: Ambassador J. Thomas Schieffer for reasons 1/4 (b,d)

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 006785

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DEPT PLEASE PASS TO EB/ESC/IEC/ENR:PHAYMOND,
EB/ESC/IEC:SGALLOGLY, EB/ESC/IEC/ENRB:JWECKER,
EB/ESC:JEIGHMIE, INR BGOLDBERG. NSC PLEASE PASS TO KTONG,
JSHRIER
DOE PLEASE PASS TO DOE/PI: DPUMPHREY, JNAKANO

E.O. 12958: DECL: 11/28/2016
TAGS: PREL PGOV ENRG JA RU
SUBJECT: RUSSIA OIL SEMINAR REVEALS DIFFERING VIEWS ON
RUSSIAN ENERGY POLICY


Classified By: Ambassador J. Thomas Schieffer for reasons 1/4 (b,d)


1. (SBU) Summary. Two Russian guest panelists at a November
9 seminar on Russian energy strategy in Tokyo displayed
starkly different views on Moscow's energy policy. An
executive of the energy company Rosneft strenuously defended
the Russian government and its environmental policies,
particularly as they relate to the Russian island Sakhalin.
A journalist specializing in energy issues had a more cynical
view of Russian motives and was particularly critical of the
government,s relationship with Russian gas major Gazprom. A
Japanese guest panelist, the chief researcher at Japan Oil,
Gas and Metals National Corporation (JOGMEC) said little
other than to outline concerns over the Sakhalin 2 project,
the one project out of six on Sakhalin Island in which
Rosneft has no investment. End summary.

Rosneft Business in Eastern Siberia and Russian Far East
-------------- --------------


2. (SBU) On November 9 Econoff and Econspec attended the
Seventh Annual Russian Energy Strategy Symposium sponsored by
Mainichi Shimbun. Guest panelists Rosneft Strategic Overseas
Project Bureau Director General Valeri Rusakov and Russian
Energy Weekly Analyst and Editor in Chief Mikhail Kroutikhin
explained their very different views of the Russian
government,s motives in the energy arena. Rusakov began
with a discussion of East Siberia and the Russian Far East,
calling the areas strategically important for Russian energy
major Rosneft. He highlighted the fact that in 2005 oil
production had been 420,000 barrels/day but that that was
expected to increase to 2.7 million barrels/day by 2015.

Rosneft and Sakhalin
--------------


3. (SBU) Rusakov relayed that Rosneft is participating in
five projects on the island of Sakhalin. In Sakhalin 1,
Rosneft holds 20 percent while ExxonMobil has 30 percent,

Sakhalin Oil and Gas Company (SODECO, a Japanese consortium)
has 30 percent, and an Indian company, Oil and Natural Gas
Corporation, has 20 percent. Rosneft has teamed up with the
Chinese company SINOPEC in Sakhalin 3 and British Petroleum
on Sakhalin 4. (Note: Rosneft is NOT involved in Sakhalin
2, which is under investigation by the Russian government for
environmental violations.)


4. (SBU) Rusakov pointed out that the ecology of East Siberia
and the Russian Far East was very important to him because he
grew up on Sakhalin. He argued that Russian interest and
concern over environmental issues was real. He admitted,
however, that the Russian legal system was still undeveloped
and Russian technology was immature but insisted that Russian
environmental standards should still match international
standards.

Ghost of Gazprom
--------------


5. (SBU) During Q&A many questions from the audience
concerned Russia,s natural gas, forcing Rusakov to point out
that natural gas issues were primarily the domain of Russian
natural gas company Gazprom, not Rosneft. Rusakov also
called for politics to be left out of the discussion of
Sakhalin and noted he had heard nothing from authorities
about canceling any contracts. Asked about Sakhalin 1 gas
buyers, Rusakov reminded the audience that originally the
Sakhalin 1 consortium had planned to ship the project,s gas
to Hokkaido via pipeline but that Japan has rejected that
plan because of its preference for liquefied natural gas
(LNG). Rusakov said the consortium was now considering three
options: 1) build a pipeline to China, 2) build a facility to
convert the gas to LNG for shipment to Japan, or 3) link up
with Sakhalin 2 to convert the gas to LNG. (Note: The second
and third options are fairly unlikely and possibly were
suggested to appease the Japanese audience.) Rusakov also
emphasized that Rosneft would like the East Siberian pipeline
to go to the Pacific so that its resources could reach

TOKYO 00006785 002 OF 003


consumers other than only China. Asked about the incident
last December involving the temporary shut-off of the Russian
natural gas supply to Ukraine, Rusakov heatedly pointed out
that Russia had only done so to force Ukraine to start paying
the market price for the gas.

Russian Critic
--------------


6. (SBU) Kroutikhin played counterpoint to Rusakov,s defence
of the Russian government, at one point quoting an American
political economist who called the country "a state with an
iron fist that adapted democratic elements such as
elections." Kroutikhin observed that Russia has no
independent judicial branch, no independent capital, and no
third-party control over presidential power. He described
the system of state authority as akin to a corporation and
said that national interests were directly linked to the
interests of the Kremlin. Kroutikhin criticized Russia,s
energy policy as being directly related to the 2008
presidential election and said that any major oil company,s
business decisions were made in consultation with the
government. He gave as an example the pipeline project from
East Siberia to the Pacific, saying the project had been a
nationally strategic decision rather than a business
decision. Kroutikhin was highly critical of gas major
Gazprom, saying that Russian President Putin acts as a
Gazprom representative when he travels overseas. Kroutikhin
claimed that the government monopolizes Gazprom,s revenue,
allocating less than one quarter of its expenditures to
domestic gas exploration, while the rest is invested in
foreign companies, used to acquire media companies or used
for political campaigning. He also accused Gazprom of
pushing its way into projects close to completion by using
its political power and thus increasing the State,s
revenues.


7. (SBU) In Q&A Kroutikhin continued his attack on the
Russian government, calling the threatened revocation of
Sakhalin 2,s environmental license "justice by choice." He
pointed out that most of the project's destructive lumbering
occurred near the pipeline but that the Sakhalin Energy
consortium was required by regulation to use a local
subsidiary for the work. Kroutikhin also noted that the
construction of the East Siberian pipeline was behind
schedule and expressed doubt that it would extend to the
Pacific. He closed by accusing the Russian government of
using its energy resources as a political weapon.

Sympathetic Japanese View of Russian Government
-------------- --


8. (SBU) In his assessment of Sakhalin 2, Japan Oil, Gas and
Metals National Corporation (JOGMEC) Chief Researcher Masumi
Motomura claimed that the media had confused three different
issues. First, the environment had been seriously damaged in
the southern part of Sakhalin. Landslides had become a real
risk to the pipelines which in turn threatened additional
environmental contamination in that region. Secondly, the
cost of construction had doubled from $10 billion to $20
billion. Third, Gazprom was attempting to gain a share in
the project. Motomura noted that the last two problems had
only recently
appeared. (Note: On July 6, 2005, Gazprom and Royal Dutch
Shell agreed on an oil asset swap deal. Gazprom was to take
a 25 percent share of Sakhalin 2 while Shell would receive in
return about 50 percent of a west Siberian field,
Zapolyarnoye. Only days later Shell announced the cost of
the development had doubled. Gazprom became angry that it
had not been notified of this before signing the swap deal.
The two companies have been in negotiation ever since.)
Motomura noted that relevant Russian ministries had clearly
stated that the Sakhalin 2 contract could not be altered
without the agreement of all parties and he said he thought
it very likely that Shell would seek a compromise with
Gazprom. Motomura also criticized the media for politically
dramatizing the cessation of gas supplies to Ukraine by
Moscow last December, saying that the experts saw the

TOKYO 00006785 003 OF 003


incident as purely an economic one.

Bio Notes:
--------------


9. (SBU) Rusakov, 33, is a graduate of the Moscow University
of Commerce with a degree in Economics and
International Economic Relations. Now an analyst and
editor-in-chief of the weekly Russian Energy, Kroutikhin, 59,
began his journalism career at Russian media company Tass
International and has been a correspondent in Teheran and
Cairo. He also served as Cairo's Tass bureau chief.
Motomura, 56, has been in his current post as chief
researcher at JOGMEG since 2004. He spent time as a
researcher at the Oxford Energy Institute during 2001-02.
Motomura holds a master,s degree in geology from the
University of Tokyo. He began working for Japan National Oil
Corporation (JNOC) in 1977. (Note: JNOC, a government
institution, was dissolved in 2005. Some of its business was
spun off into JOGMEG.)

Comment
--------------

10. (C) The Russians, especially Rusakov, were unprepared for
the Japanese interest in Sakhalin 2, a project with much
greater impact on Japan because it will be producing LNG,
over half of which already is contracted to go to Japan. Age
and occupation likely played a large role in defining the
Russians, differing viewpoints on their government. Rusakov
was quite passionate in his defense of his native Sakhalin
while Kroutikhin clearly has developed a jaundiced eye
covering the news over the years. As for Japanese panelist
Motomura, he added little to the debate beyond a slightly
positive assessment of the Russian government and was more
than willing to cede the floor to the Russians most of the
time.
SCHIEFFER