Yuri BATALIN

President Russian Oil and Gas Construction Union

It is imperative for Russia to take advantage of the current favorable conditions on the global energy market in order to fundamentally transform the country's economics, to restore the domestic engineering and high-tech industries, and to develop the enterprises serving the consumer demand efficiently.

In recent years, the stability of high oil prices and the growth of the oil and gas production in Russia made it possible to increase substantially both the gold and currency reserves of the country and the size of the stabilization fund. At the same time, the accumulated reserves practically do not contribute to the development of the national economics, whereas the economic growth in the country continues to decline, the competitive capacity of the engineering,

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processing, and other industries does not improve, and there emerges a risk of failing to achieve the objective of the GDP doubling.

The concerns about the short-time character of the high fuel export revenues, voiced by a number of "politicians and economists", are groundless. Forecasts of the leading world experts show that the global oil consumption is to grow rapidly in the years to come, and that by 2020 it will soar to 5.2 billion tons as compared to 3.6 billion tons in 2000. The oil consumption hike in the countries of the Asian-Pacific region will be particularly fast - from 972 million tons in 2001 to 2000 - 2200 million tons in 2020. The oil consumption in China will reach 600 million tons, the domestic production being 170 - 200 million tons. In the US, the oil consumption will rise from 900 billion tons in 2000 to 1200 billion tons in 2020, while the domestic production accounts for 300 -350 million tons of oil. The increase in the consumption of oil and the products of its processing will provide for a sustainable economic development in these countries. The oil-consuming countries get a 8 - 10 times greater economic effect than those exporting hydrocarbons.

Obviously, Russia should use the oil and gas sale revenues maximally to restore and to develop intensely the domestic engineering industry, which is crucial for the national economy's competitive potential, to develop the high-tech and other industries (the agroindustrial complex, the consumer goods, the food processing, and the automotive industry). This is the only way to create millions of well-paid jobs, improve the national living standard, and put an end to poverty.

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Since at present the funds necessary for the structural transformation of economics, for a boost of the industry's competitiveness, for the struggle against poverty, and for the acceleration of the economic growth can mainly be obtained from oil and gas, the Russian government should take steps towards the development of the oil, gas, petrochemical, and gas-chemical industries on a greater scale than envisioned by the Energy Strategy 2020.

The above problems can be resolved on the basis of an intensified development of the oil, gas, petrochemical, and gas-chemical industries in Eastern Siberia, which is the only region of the world, where vast oil and gas resources remain unused so far. The East-Siberian and Far-Eastern minable resources of oil and gas, estimated as 20 - 22 billion tons and 58 - 61 trillion cubic meters respectively, are sufficient to set the objective of producing 120 - 150 million tons of oil and 160 - 180 billion cubic meters of gas in the East of the country by 2020.

We absolutely cannot ignore the scenario, according to which the struggle between countries and transnational corporations for the oil and gas resources will lead to territorial or other types of claims concerning the East-Siberian region. It is well-known that in the early 1990s the US press seriously debated the expediency of buying Eastern Siberia for $2 trillion. Recently, the former US secretary of State Madlen Allbright opined that the belonging of extensive eastern territories to Russia is a major global injustice. For these reasons powerful oil, gas, petrochemical, and gas-chemical industries must be established in Eastern Siberia without delay.

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The problems of developing the East-Siberian oil and gas resources and the options for the routes of hydrocarbon transportation to China, Korea, Japan, and other Asian-Pacific countries have been under discussion for a long period of time.

Certainly, there are factors impeding the development of the East-Siberian oil and gas resources. The corresponding deposits are mostly of the type involving oil and gas, or oil, gas, and condensate all at once. Consequently, oil and gas production must be combined at these sites, which are scattered over extensive territories and owned by different developers. The complicated natural and climatic conditions, lack of geological exploration, transportation and industrial infrastructures are factors hindering the potential investments in the deposits development and the pipeline construction.

The Government and the Transneft Ltd adopted an exceptionally important decision to construct the Eastern Siberia - Pacific Ocean pipeline network (ESPO). According to the ruling of the Russian Industry and Energetics Ministry, the construction of the first part of the network, namely, the Tayshet - Skovorodino pipeline with the 30 million ton capacity is supposed to be completed by 2008. Though this certainly is the basis for the development of the East-Siberian deposits, the resolution of the problem on a greater scale requires a rapid construction of the second part of the system from Skovorodino to the Pacific Ocean.

Naturally, a related task is to launch the operation of the Eastern pipeline at the planned 80 million ton level and to create adequate oil production capacities in Eastern

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Siberia. This is the only way of fast recoupment for the project. In the Soviet era the field construction in Eastern Siberia was performed in advance, and owing to this method the oil pipelines started to operate at the planned capacity in 2 - 3 years, and the gas pipelines - in 1.5 - 2 years after their operation launch. Investments were returned in just 2 years.

In our opinion, efforts should primarily be focused on the development of the Urubcheno-Takhomskoe zone development in order to ensure a rapid oil production growth in Eastern Siberia. According to geological survey estimates, the oil and gas reserves in this zone make over 2 billion tons and 2 trillion cubic meters respectively in the already discovered deposits alone. The discovery of new deposits in adjacent territories is foreseen.

Thus, it is necessary to perform urgent explorations at the Urubcheno-Takhomskoe deposits group and the nearby territories, to take steps towards constructing fields at this locale and linking them to Ust-Kut via a pipeline as soon as possible. Besides, it appears expedient to intensify the construction of fields at the Yakutia deposits and the construction of a pipeline from them to the Ust-Kut area.

It is unacceptable that Russia, despite its vast natural resources, falls behind other countries in the petrochemical production. According to the 2002 data, our per capita production of plastics and synthetic resins is 7 times below, and of chemical fiber - 15 times below that of the US. Compared to Japan, the same ratios are 3 and 6 times, compared to China - 2 and 4 times, and compared to Poland, Romania, and Hungary - 2 - 4 times. In other words, we are at the bottom of the list in petrochemistry.

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Due to the above circumstances, Russia's priorities should not lie in the hydrocarbon exports area, a business in which we engage with so much enthusiasm. Having extensive resources of high-quality light crude oil with low sulfur content in Eastern Siberia, we could create large petrochemical capacities in this region with an output of advanced modern products which sell well on the domestic and global markets. It makes sense to consider constructing several oil refining and petrochemical enterprises with a total capacity of 50 - 80 million tons by 2020, mainly to export their products to the Asian-Pacific countries.

The gas-field construction in Eastern Siberia is a somewhat more complicated issue, since so far the problem of finding consumers for them remains unresolved. It is well-known that the Russian Federation and China conduct continuous negotiations concerning massive oil deliveries to China. Since oil and gas or oil, gas, and condensate are combined in the East-Siberian deposits and a parallel oil and gas production is required, it is expedient to relate the potential deliveries of large amounts of oil to China to the precondition of China's buying large amounts of gas and products of its processing as well. A long-term agreement with China on the issue is necessary.

In case the problem of a market for the East-Siberian gas is resolved, it would be best to develop the region's deposits in a complex and to construct oil and gas pipelines from them synchronously.

Loosing the accompanying gas during the development of the East-Siberian deposits is unacceptable. To prevent this and to get investment in the transportation infrastructure, it is expedient to

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begin with constructing a gas-main pipeline from the gas deposits in the North-East of the Yamal-Nenets Autonomous Area through the zone of the Urubcheno-Takhomskoe deposits group to Ust-Kut, and further along the Baykal - Amur railway, to the North of Baikal, via Chita to the Chinese border in the Zabaykalsk region. The construction of a pipeline from the North-East of the Yamal Autonomous District will become a basis for the creation of an energy and transportation corridor in the gas- and oil-rich zone of Eastern Siberia and establish favorable conditions for geological explorations along the route.

Since the gas from the East-Siberian and Yakutian deposits contains a range of valuable components, it should be processed. To this end, large gas-chemical enterprises should be created producing modern highly marketable commodities, for which there is a stable growing demand at the domestic and global markets. Gas processing can yield over 15 million tons of chemical products including over 3 million tons of butane and propane for use in the gasification of the regions, located far from gas pipelines, and for sale. There is also a substantial demand for methanol, fertilizers, polypropylene, and other gas processing products at the global market.

Due to the need to expedite the forming of the East-Siberian complex, a special Federal Program should be elaborated urgently for the development of oil, gas, petrochemical, and gas-chemical industries in Eastern Siberia, the gasification of cities and settlements, enterprises. A coordinating center (a special federal organization or a federal enterprise) should be instituted to implement the program. Since several regions of the Russian Federation are interested in the implementation of this program,

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an interdepartmental commission should also be established, presumably under the auspices of the Russian Federation Ministry of Regional Development.

It is expedient to form consortiums of Russian and foreign partners to invest in the construction of the Eastern pipelines and the chemical processing plants. Definitely, major Russian companies and potential investors from the Asian-Pacific region will be interested in the creation of modern industrial complexes in Eastern Siberia. The Russian Administration could suggest that the countries and business circles of the world, primarily China, India, Japan, Korea, as well as Germany and other European countries, take part in the development of the East-Siberian natural resources and the construction of large-scale hydrocarbon transportation networks and modern chemical plants. Russia could join the consortiums and partially provide funds for major infrastructural projects in the East of the country using the means coming from oil and gas exports.

The creation of a vast oil and gas industry and global energy and industrial centers in Eastern Siberia and the gasification of the region will make it possible to overcome the negative demographic trends observed in the area to the east of the Urals, to stop the migration of the population from these territories, which began in the post-Soviet epoch, and to establish conditions for attracting specialists from other parts of Russia and other CIS states to this region. In a short-time perspective, Eastern Siberia can evolve into a new currency-maker for the country like Western Siberia that could make it thanks to the oil and gas production.

The economic development in the East of the country will serve as a basis for the profitable cooperation and stronger allied ties

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with China, India, and the Asian-Pacific countries, and for the strengthening of Russia's role of a Euroasian power.

RA

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