"Economic Development and the Environment"
on the Sakhalin Offshore Oil and Gas Fields II

Copyright (C) 1999 by Slavic Research Center, Hokkaido University.
All rights reserved

The Russian Far East and Northeast Asia:
Aspects of Energy Demand and Supply Cooperation

Victor D. Kalashnikov

Energy Development in the Russian Far East and Comparative Advantages for Cooperation with Northeast Asia
The Fuel-and-Power Complex (FPC)*10  is represented in the Russian Far East (RFE) by the coal, oil and gas, oil refinery industries, and also by electricity enterprises. Historically, the RFE's energy sector has mainly supplied energy for local development, with virtually no significant achievements in the production of fuel and power products for interregional and external economic exchange. The modest general economic parameters of the Russian Far East, compared nationally, demonstrate its lack of national importance in the production and consumption of energy resources*11.
The period from 1980 to 1990 saw dynamic growth in the Russian Far East's production and consumption of primary energy, and also of final energy products. The demand for energy has continuously grown at an average annual rate of 2.7 percent, for electricity - 4.5 percent. Over ten years, energy production grew by 35 percent, and electricity - by 57 percent. Still, the Russian Far East has constantly experienced a lack in production capacity to meet the growing energy demand.
Between 1980 and 1990, the RFE energy sector's current technological pattern was formed, which, in the 1990s, has not undergone any substantial modifications (except for the coal industry).
The RFE's current energy balance is largely the result of Soviet-era energy policies. In the Russian Far East, the energy balance's specific structure was historically based on a high dependence on energy (Table 8). In 1990, 46 percent of total energy consumption in the Russian Far East was based on domestic imports of energy. Thus, energy consumption was dominated by coal (36.9 %), and petroleum fuels (46.5 %) with a low share for natural gas (6.2%) and hydro-power (6%). Energy consumption has long exceeded energy production.
Economic changes have resulted in an overall reduction in the scale of the RFE's energy balance. The reduction in the region's energy balance affected all stages of the energy flow. In 1997, in comparison with the maximum levels achieved during the 1985-1991 period, coal production accounted for 57 %, oil - 75 %, natural gas - 100 %, electricity production - 78 %, oil refining - 40 %. According to studies, on the whole, the RFE's energy production in 1997 was 67% of the 1990 level, gross energy consumption - 65%, industrial production fell by 43 %.
Activating the distributive function of prices has had a positive result in improving energy consumption efficiency in the RFE. The orientation toward market-based efficiency measures for using energy resources has resulted in structural shifts in the RFE's gross energy consumption. This has resulted in a concentration on the utilization of relatively inexpensive coal resources with a simultaneous reduction in the share of expensive petroleum fuels. Petroleum fuel's share in total energy consumption for the RFE fell from 46.5% in 1990 to 34.4 % in 1997.
The overall reduction in energy consumption between 1992 and 1997 lowered the volume and degree of the RFE's energy dependence. However, in 1996 more than 36% of the RFE's total energy consumption was still supplied by energy resource imports from other regions.
The current situation in the RFE's energy sector is characterized by a number of factors that are crucial for developing the region's energy balance. Among them, the following factors should be noted:
the opportunity for RFE energy resources to enter global energy markets via the Asia-Pacific region, and, primarily, Northeast Asia;
Table 8. Basic Structural Indicators of the RFE's Energy Balance (as of 1990, 1997)
Source: Figures from ERI.
In general terms, the basic strategic steps necessary for the formation of an effective energy balance structure in the RFE call for:
International cooperation in the RFE energy sector occupies an important place in the structural transformation of the NEA region's energy sector and economy as a whole. This is mainly due to the presence and interaction of a number of comparative advantages in the Russian Far East, as well as the capabilities that lie in the Northeast Asian countries.
The internal comparative advantages of the Russian Far Eastern energy sector can be examined by focusing on the following determinants:

  I. Geopolitical:  
    I.1. General Geopolitics
I.2. Energy Geopolitics
  II. Economic:  
    II.1. Basic factor conditions
II.2. Supporting infrastructure availability
II.3. Domestic demand conditions
II.4. Competitive conditions inside the region
  III. Institutional  

This approach to classifying the above determinants is rather conditional, since they exist not as a set of isolated components, but as a dynamic system.
It should be noted that the comparative advantages of the energy sector in the RFE have a contradictory character and are not absolute.