Siberian riches

With the population of 0.03 persons per square kilometre in some parts and temperatures plunging well below minus 50 degrees Celsius in the winter, East Siberia is Russia's next up-and-coming oil province.

In fact, developing the remote eastern lands -- formerly home to many of Russia's notorious Gulag labour camps -- is no longer a choice but a necessity, thanks to Russia's booming economy, growing exports obligations and colossal ambitions to become a truly global supplier of energy. The advancing maturity of the country's main producing fields in Western Siberia means that an alternative must be found before supply becomes a real issue.

East Siberia and the Russian Far East (RFE) rose on the government agenda rapidly, propelled primarily by geopolitical considerations. The region's proximity to the Asia-Pacific, tensions in energy relations with Europe and the resultant desire to diversify export outlets -- not least to raise its bargaining power with Europe -- have made East Siberia and the RFE the preferred candidate of the Russian government to succeed -- or better still, complement -- West Siberia.

Targets for the development have already been set:

• President Vladimir Putin proclaimed in 2006 that the share of Russian oil exports to the Asia-Pacific region would increase from the current 3% to 30% in 2020. This would require an output increase from the current 1.5 million tonnes of oil per annum to 30 million by 2011.
• Annual exports of gas to China and South Korea have been set at 50 billion cubic metres (bcm), while those to the rest of the Asia-Pacific at 28 bcm. Domestic deliveries from the eastern provinces are planned at more than 100 bcm.

Even with developed social and transport infrastructure, the scale of the task would be clearly enormous. However, East Siberia and the RFE have historically been the least developed parts of the country. The situation was exacerbated in the 1990s by the collapse of industrial production, the end of wage differentials to create incentives for settlement and the resulting population outflow. The latter has, in turn, created a national security problem, with Moscow fearing a gradual takeover of Siberia by Chinese migrants.  

Russia is looking to develop East Siberia in the same way and at the same breakneck pace that the Soviet Union developed West Siberia in the 1960s-70s. Yet the challenges presented by the east of the country are even more colossal on a number of criteria such as climate, geology, infrastructure and workforce. Moreover, Russia today is not a command economy, and it will be harder to allocate the necessary funds to the region's development. And yet the ongoing squeezing of foreign investors, the uncertainty over legal rights and delays to passing the subsoil law will discourage foreign companies from investing in virgin lands. The more developed provinces that are closer to the traditional exports markets in Europe will remain more attractive for both foreign and domestic investors.

A massive but frequently ignored problem is that of under-exploration in East Siberia. Despite setting targets, the Russian government has no clear idea as to the reserves potential of East Siberia and the RFE. The estimates presented by Gazprom differ considerably from those of the Russian Academy of Sciences:

• Gazprom forecasts the maximum annual production from the region at 207 bcm of gas and 48 million tonnes of oil.
• The Academy of Sciences estimates gas production at no more than 150 bcm, but oil at a whopping 95 million tonnes.
• Meanwhile, the Russian Energy Strategy to 2020 constructs a pessimistic and an optimistic development scenario, in which annual production ranges between 3 million and 80 million tonnes for oil, and between 55 bcm and 110 bcm for gas.

Clearly, in the absence of hard geological data on what is actually available, setting hypothetical targets is unlikely to prove productive.

Moscow stakes much of its international prestige on accomplishing this grand project. But the enormity of the task means that the government will take shortcuts, focusing on the development of natural resources without due attention paid to environmental and social issues. If so, East Siberia and the RFE will remain a raw materials appendix of Russia, supplying not only the country itself but also the neighbouring regions with oil, gas, copper, coal, zinc, lead and timber. If pursued conscientiously, however, the development of East Siberia and the RFE will prove one of the most challenging projects in Russia’s history.