 Move on to the next panel. I'm Dan Bob, and I'm senior fellow and director of programs at Sasakawa USA. And we're going to move now into the economic trade and energy part of this conference. And as Eugene rumor said, the two economies of Russia and Japan would seem to be extremely complementary, at least when you look at it from a distance, a cursory look would perhaps lead you to that conclusion. After all, Russia has enormous quantities of oil and gas and natural resources. And Japan, especially in the aftermath of the 311 disaster, the nuclear disaster, has needed new sources of energy. Russia's economy is struggling, while Japanese companies are sitting on a pretty large horde of cash and looking for investment opportunities, not only domestically, but around the world. But we've assembled really a terrific group of experts who've done more than a cursory look at this issue. And we'll give us their thoughts and a real reality check. We're going to begin with Irina Timomina, who's a professor at the Institute of Business Studies in Moscow. She'll be followed by Taizuke Abiru, who's a research fellow at the Tokyo Foundation, which actually happens to be a sister foundation of Sasakawa USA. Then Ed Chow, who's a senior fellow at the Center for Strategic and International Studies in the Energy and National Security Program, will give us his thoughts. And finally, Alexander Gabuev is going to bat cleanup for us. And he's a senior associate with Carnegie Moscow Center. So with that, let me turn things over to Irina. Thank you. I would like to begin from the sense for opportunity, for chance to take part in this conference, very useful, I assure. Let's go concerning economic relations between Russia and Japan. Usually when we start to analyze economic relations between two countries, between Russia and Japan, the first thing we do to find and analyze statistical data on the mutual trade, investments, and other kinds of cooperation. And at first glance, Russia and Japan being in world top by GDP size could be main partners, economic partners for each other. Besides, geographically, two countries are neighbors, as we know, of course. But actually, as we can see on the graph, the share of Russia in Japan external trade is not significant. And if we look at opposite shares, the same picture. And it's an important and interesting fact. I find the data on 1975 in Soviet period almost the same shares, almost the same figures. Let's go for more exact analyze. Let's look at such well-known index, like trade in density index. This index shows the trade linkage between two countries. If the figures higher one, it means that trade relations between countries are strong. If lower, weak, of course. I calculated this index for both countries, for from side of Russia and from side of Japan. And I got almost the same lower figures, more or less accurate. What are the reasons? What influence the trade to know? And then I would like to say some words about the term complementarily. One of colleagues discuss a little bit this problem. Nowadays, major part of international trade, of external trade of countries, is affected within transnational corporation transfer goods and services. And it seems to me it's new complementarily. Therefore, the share of semi-products in external trade and international trade grow and grow and grow. And from the other side, this model grows up of external trade quantitative figures. And what about the structure of trade turnover between Russia and Japan? Dominated but raw materials from the Russia side and fabricate finished products from the side of Japan. It's not bad or good, but it seems to me it's a traditional model complementarily. And now it doesn't work effectively. We see the new model. Intercompany transfers of goods and services are closely related to investments between countries, between companies, between divisions of companies, especially if we say about foreign direct investments. And statistical data in this sphere shows us not significant level also. Of course, it's net flows and stocks. It's possible to say. But there are some areas where it's interesting, maybe surprise, but there are some areas where foreign direct investments from Japan are priority in the Russian market among other foreign investors. Figures, it's persons from all, from total stock of foreign direct investment in Russia in this area. Of course, it's mining. It's not surprise, but motor vehicles, pharmaceuticals, I might say. And surprise for me also, agricultural sphere. It's quite new, it seems to me. And what's the prospects? Let's remember that besides statistical figures, there are companies, managers, people, and those decisions. And according to the results of the survey conducted by Japanese organization JETRO at the end of 2014, the major companies taking part in this survey have moderately optimism. But important point, it should be mentioned that major part of these companies which took part in the survey are sales and distribution companies. And they focus mainly on sales, growth, capitalization, in emerging markets. It's company strategies. And Russia, in spite of all circumstances, is emerging markets, of course. If we look at companies which operate in production sector, they have a different view on the market. And there are some challenges. Please look at this graph, also survey of JETRO. It's not a surprise that recent economic and political developments in Russia and in the world were often mentioned during the survey more often than sanctions itself. It's interesting. And two main points, significant collapse of ruble, national currency of Russia. And this drop of ruble led to less optimistic foreign cost for all foreign companies and, of course, for Japanese companies. What are the promising? It's often site, subject. Incorporation is energy sector. And I see my colleagues in more detail concerning this problem, but only two remarks I would like to make. Now energy projects have new contents, it seems to me, within concept of energy bridge. Energy bridge contents, soft and hard components. It's quite new, it seems to me. And another important point in this sphere is that international projects in this sphere are actively supported by government of Russian Federation and its neighbors. I mean Chinese government and the Chinese financial organization. The case of, in this sphere, Yamal LNG. Russian company Novotec now can't get finance by cost of sanctions, finance from the East. And the government of Russian Federation gave a huge amount of financial to support this project. And there are agreement with China to join funds from China, Chinese financial organization. The premiere of autumn, this autumn, some days ago, Igor Sechin's proposal concerning participation of Japanese companies, of Japanese business in concept, in project, energy bridge. And maybe these proposals could create new format interdependence in energy sphere between Russia and Japan. And important point, it seems to me, we know that one of the directions of Abenomics, it's supporting of expert systems, infrastructure projects, and solutions in infrastructure sphere. And maybe participation of Japanese companies in projects inside energy bridge may be useful not only for Japanese corporation itself, but also for Japanese economies in whole. There are some interesting sphere, it seems to me, infrastructure, RDI, and agricultural, it's new. But one more my remark, I wouldn't expect the significant increase in statistical indicators. We can talk in this sphere, in this problem, about individual projects. But they are maybe large and important itself, of course. And the most important thing is the feeling of the business and image every country in the eyes of partners. Let's sum up. In the conclusion, I would like to say, let's understand one simple thing. Every country can be major partner in economic relation for other each country. And I think the most important for Russia and for Japan is the opportunity to diversify. Diversify, therefore, in economic relation, independent from the quantitative indicators. Thank you for your attention. Thank you very much. Thank you, Irina. Abiru-san? Yes. My name is Taizuki Abiru. The research from Tokyo Foundation. Thank you for inviting me to your conference. It is very nice to meet my Russian colleague and friends in Washington DC, because we usually meet in Tokyo or in Moscow. Anyway, this morning, Ambassador Palom described kind of a pessimistic view on Japan's economic cooperation. I try to describe a more positive view of the Japan-Russia especially on the economic energy cooperation. There are three periods of the Japan policy to Russia, one is the economic cooperation, including energy area. Second is the security cooperation, the keeping China factor in mind. And finally, the history issue, this relation to the both. And the current government, Japan's government strategy to Russia is based on the assumption that the first two could provide good foundation for Japan and Russia to find and seek a mutually acceptable compromise on the territorial issue. And to this my remark I mentioned, to this my remark on the focusing on the energy cooperation. Actually, economic sanctions imposed on Russia after the Korean crisis and sharp drop in oil prices that for us have, and deniably, made less attractive for Japan's business to make investment in energy area in Russia. This is true. However, partially because of these difficulties, there are some signs that Japan and Russia in particular have started changing their traditional approaches in more positive way. As you know, currently Japan's, Russia shares of Japan's oil and natural gas import is about 10% and oil is about 8%. And I start with natural gas. As you know, after Fukushima nuclear accident, Japan increased the volume of LNG import about 25% in four years. So enhancing bilateral cooperation in gas area had the very promising for couple of years. Actually, there are four competing new LNG project supposed to target at Asian Pacific region. Gas market included in Japan. One is Rajbastok LNG project and Saharin II LNG's expansion project. Both of these are initiated by Gazprom. And also, there is another LNG project in Saharin. That is the far east LNG project initiated by Losnich. And last one is, as Russian colleague mentioned, Yamal LNG project initiated by Novartek. However, economic sanctions and sharp drop in oil plus have made some of these projects economically unfeasible. Now it seems that there is a kind of consensus among Japanese business that only Saharin II's Sartrain project, that means the expansion project, could be considered as economically feasible. Even though this project still have its own problem in getting supply source gas due to US economic sanctions on Saharin III's South Kyrinsky gas field and internal competition between Gazprom and Losnich. Situation is foreign. Now, Saharin III's South Kyrinsky gas field, which have very promising and big natural gas reserve, is on the US sanction list. So Gazprom should seek another source of gas to realize this is on the Saharin II's expansion plan. And only possible option would be the Saharin I's gas field, which operated by ExxonMobil and Japanese Consortium Soreco and Losnich. And as you mentioned before, Losnich has its own energy project, and they think that Saharin I's gas field should be the supply source of gas for their own energy project. So actually, despite the conventional wisdom that Losi has huge amount of gas, actually, in terms of economic feasibility, Losi has huge option. And here, there's no understanding between Losnich and Gazprom. But now, it seems to me that some kind of positive development, because finally, Gazprom and Losnich started talking about the selling of Saharin I's gas to Gazprom's project. But I don't know when they can agree especially on the price. And if they could agree on the price, I don't know. But anyway, here we can see some positive development. And there is new development also in the oil area. As Losi currently mentioned just recently, in the city of Losnich, Tokyo, and made a speech at the Energy Conference organized actually by the Sasuga Peace Foundation, Tokyo, to ask Japanese companies to make investment in Losi's oil upstream field. His speech has been considered as a strong sign that Losi would be ready to open up promising upstream oil field to Japanese investors. As you know, Japan input about 80% of the oil from the east. So if Losnich offers a really attractive in terms of economic feasibility for Japanese companies, then it could meet Japan's strategic interest in terms of energy security, that much more than gas cooperation actually. And finally, I also would like to mention about the published project that Losi currently mentioned. Actually, this project assumed that Japan and Losi will be interconnected through high voltage electric cable to import electricity from Losi to Japan. Fukushima accident showed a serious defect of current electricity supply system in Japan based on the regional monopolies. So in the end of 2013, Japan's diet enacted a law to three-stage deform of the electricity sector, including the creation of nationwide power grid operator and separating utility power generation and transmission business, what it's called, unbundling. Actually, this reform should be completed by in 2020. And so actually, even if high voltage electric cable are laid between, for example, Sakhalin and Hokkaido, without this reform, electricity produced, for example, in Sakhalin cannot be supplied to Honshu, the main industrial base of Japan. So as far as I know, there are a serious supporter of this project within the Japanese government as an extension of the Japanese electricity system default after Fukushima accident. So if this project is realized, Japan and Losi could open a new window for cooperation in the energy sector. And finally, I would like to add one more important aspect of the Japan-Losi Economic Corporation. That is the finance because as long as, you know, the United States sanctions on Russia, we cannot finance this project by tariffs. So this is one of the most serious aspects of the US economic sanctions on Russia. But now, Japanese state-owned Japanese Bank of International Corporation announced that they would be ready to finance by yen on this kind of project. And I think that Russia's business is also ready to accept yen to realize this project. So I'm a little bit optimistic about Japan-Losi Economic Corporation. Thank you. Great, thank you. Ed Chow. Thank you. Well, first of all, I want to thank Sasakawa USA and Carnegie for inviting me to speak at this conference, an important conference. I'm sorry I missed the morning. We had a little event at CSIS, our annual global security forum today, so I wasn't able to join you. I'm going to try to stick to my knitting on energy because that's the only thing I know a little bit about. And let you draw the policy and inform policy conclusions, maybe. A bit of consumer warning here. I spent more than 20 years inside the oil and gas, international oil and gas industry. I'm still recovering from that. And I tend still to look at oil and gas primarily as a business matter and as economic activity rather than as a policy tool. There's a problem with seeing energy as a policy tool, which is that it is a long lead time business. If you're trying to do anything significant, you would take five to 10 years to complete a project if you're really lucky. I've been in deals where we negotiated for two, three years before any dirt got moved. So it's not the most elegant policy tool that you can think of, particularly at a time when the industry is buffeted by price volatility. So bear that in mind. The other problem of having been around for a long time is that I remember things. Now, SotoCo started in the 1970s. It may have been very terribly useful as a LNG import source, what ended up, the succulent development in recent years. But from a rate of return point of view, if you assign any cost of capital to the projects, they have negative rate of returns. They were terrible economic projects in all respects. When a company I used to work for bought a competitor who had a small percentage in SotoCo in the mid-1980s, the first thing we did was to dump that equity interest and without any regret today. So economically suboptimal, shall we say, projects can be built, but they require a subsidy of some sort, and government is usually the source of that subsidy. They're not cost-free. The complementary energy terms, the complementarity between Russia, the Soviet Union before that, and Japan, of course, have been around for a very, very long time as well. In theory, it should be an ideal partnership given Russia's desire to diversify its energy export markets. Japan's desire to diversify its energy import supply sources. But Japan has been working on this since at least the 1980s, and we don't have a lot to show for it. The track record of Japan investing in diversifying its energy supply sources is not a happy story. 30 years later, the picture doesn't look much different from it was before in terms of Japan's dependence on the Middle East for supplies or lack of Japanese equity production to supply the home provinces. So we should bear that in mind. It is a lot easier if you're Russia to diversify your energy export markets when oil is at $100. That is because you can't afford to do that. Not so much when oil is at $45. People say oil prices are really low right now. Again, my age tells me that that's not quite the case. If you take the average real price of oil over the 155-year history of the petroleum industry, you would be about $34 in today's dollars. So $40-some or in the mid-40s, which is where it is today, already has a lot of political risk factored into that price. We're unlikely to see high oil prices going back to even above $80 the remainder of this decade. Not happening anytime soon. Long commodity cycles, the last time the world seeds or moderate or too soft oil prices, it went from the mid-1980s until the late 1990s, about 15 years. So maybe that was so 20th century, and everything goes faster now. So maybe it's five years or seven, eight years, but not anytime soon, not tomorrow. And that means from an energy business point of view, if you want to diversify your markets by exporting or selling oil or gas a great distance through infrastructure that don't exist yet, it costs you a lot of money. In the short to medium term, it invokes economic pain. It doesn't make you more money, it makes you less money. And I think even in the last few months, you see Russia refocusing on Europe as this primary oil and gas export market, at least in the short to medium term, because you can't afford to build some of these expensive infrastructure projects or expensive developments, upstream developments in eastern Siberia. The desire may still be there. The strategic intent may still be there, but it's not happening very, very fast. Now, Gene Rumer talked about Russia's energy pivot to Asia primarily, meaning China. Nothing is happening under Chinese gas deals. I just came back from China on Tuesday. Nothing's moving fast. I've been to China four times this year. Every time I've been there, the talk is more and more pessimistic. It's not more and more optimistic. As an energy observer, you look at what are the indicators you look for? Well, whatever happened to the $25 billion loan or prepayment that Russia was supposed to receive from China that was rumored in Shanghai, May of 2014, when Mr. Putin famously observed the signing of the power Siberia deal. Yamal ING, OK, but China is committing to financing. It's about 30% equity share in that project. It's not financing beyond that. We're not hearing anything about Chinese equity deals. It's interesting that Mr. Sechin went to Tokyo to offer equity investment to Japanese companies. The talks with the Chinese that have been going on for at least two years, if not longer, has gone nowhere. It was ONGC of India that ended up buying 15% of Vancor even though CNPC were supposed to have first dibs on that asset. Why? Well, very simple, right? Price of oil dropped. So the asset depends on your projection on the price of oil over the long term. Russia country risk went up after Ukraine and Western sanctions. So it's really hard to agree on price. And that would be true if it was Exxon negotiating with Shell, Neverline, Rosnev negotiating with CNPC. So Japan can choose to do this, but negotiations are likely to be difficult. And would Japan do this with a still stagnant economy? Today's news is the Japanese economy is technically back in recession with a second quarter of negative GDP growth. Japan's energy demand is, even with economic recovery, is likely to continue to decline, primarily for demographic reasons. Again, is this something that the Japanese taxpayer or the Japanese shareholder in companies would like to subsidize or not? That's the decision Japan has to make. Again, the track record is not terrific. I don't know if you read last week's news, Toshiba is trying to get out of a $7-plus billion obligation to take US LNG that it probably is un-economic now. But it made the financial commitment is hanging over its balance sheet. We'll see if this TEPCO, Chubu, John Venture that will, among other things, negotiate to buy LNG together will handle things in a more business-like way or not will have to see. The last point I would make is that it would be a lot easier to finance expensive infrastructure projects, the ones that still make sense if there was truly a Northeast Asian oil and gas market, a trading market, a market that involves China, Korea, as well as Japan. And so far, all three countries tend to see its energy relationship with Russia primarily on a bilateral basis rather than on a regional basis. Economy of scale says that if you're going to invest in pipelines or LNG projects that cost tens of billions of dollars, it'd be nice to sell into a market rather than to one and that one country does not have to take so risk in terms of giving a financial guarantee to take that volume of oil and gas. And again, beyond Japan, Korea, and China tends to see these things on a bilateral basis with national oil companies that are either majority state-owned or certainly state-controlled, not just state-controlled but controlled by the party in the case of China. My Chinese friends always say that they want to have an international major to compete with the Exxon mobiles of the world. And my advice to them is that if you really want an international major, the first thing you need to do is to remove the first name from all of your oil companies because they all start with the word China. And this is a barrier to significant infrastructure development. Frankly, Vetivastak LNG never made any sense. It may be a way for Mitsui or Mitsubishi to try to sell some goods. But it violates every principle in the oil and gas business, which is you don't ship gas a great long distance and then liquefy it. If you're going to ship gas a great long distance, you want to sell it to the end market. So a bit of economic reality is needed in looking at these discussions. Again, government can selectively favor certain projects, subsidize them if they wish. But it's at some economic cost. It's not cost free. And what the Russian government has been doing recently is redouble its focus in Europe, starting with the Nord Stream 2 pipeline project rather than any pipeline to Asia right now. Thank you. Thanks, sir. Appreciate it. Alex? Thanks. Dan Bob gave me the most easy and the most difficult task because everything has been set on this wonderful panel. And I still need to say something. We had a Russian, Japanese, and American perspective. So now you get a perspective from a Russian China watcher working for American think tank. I think that this was a pretty boring panel in terms of disagreements because the previous panel had some policy types. And there were always disagreements on both contact and sometimes terminology, which is so familiar to the Russian watchers in the room because once the Russians start to talk to somebody in the US about Ukraine and you have the freedom, rave, and young people with European flags on my done versus Ukrainian fascists depicting basically the same people, it's always very difficult to frame the conversation. So here we had the same figures to which we all agree. It's very difficult to argue. So I agree to everything that has been set on this panel and just try not to clean up the panel, as Dan asked me, but to link a little bit with the previous conversation. Underlying assumption for us talking about energy, trade, and investment in this panel is type of conversation you always hear in Tokyo, in Moscow, in the diplomatic community. So once the territorial issue is solved, Japan will flood Russia with billions and billions and billions of investment. And it's only the political issues which block our cooperation. Look at how close we are. Look at how low the trade figures are. Look at how much complementarity we have in economic structure. And the only reason for that, the diplomats say, are the political problems. Once we remove that, everything's going to be set. And then the Japanese say, yeah, and that's the way how we make Russia having more options in Asia-Pacific, decrease their dependence on China, and address our own strategic concerns. The good thing about this conversation is that once diplomats and policy people are in the room, they may have one type of conversation. But you need to talk to the business people and talk to the economists. So JETRO study is one good thing about looking why Japanese companies are not actually investing into China. I did not survey but in-depth conversation throughout March to July, both in Russia and Japan, talking not to 90 companies as JETRO did, but to 10, but large, on both sides and talking to both government officials, you hear a lot of things that JETRO studies as. It's like two major problem sets. One would call mismanagement of the Russian economy. Rules are always changing. Tax policy of the oil industry has been renegotiated 10 times over the last year when Mr. Sechin, who was mentioned here, writes a letter to President Putin saying, no, no, I don't like the scheme which Minister of Finance suggested can replace it. And then the policy set on review, then come up with a final agreement. And then the price changes as Sechin writes another letter saying, no, no, now I'm not happy with the new consensus. Let's find another way. So that's one. Low oil prices, and not only about oil and gas, but about all commodities. Rubal depreciation is sometimes a good thing when you are about to invest into some manufacturing, but it's a bad thing because it's fluctuating. It's not only low, it's sometimes high. And it's very difficult to calculate any reasonable financial model for any project because you don't know what the inflation would be, what the cost will be involved, and so on. And sanctions, it's not only cost of capital and it's not only about southern Kyrie and gas filled, but what is the smart guys from the Treasury pick another gas filled, which Gazprom will develop as a new source for the LNG project. What if LNG technology is put on the sanctions list if Russia makes some stupid move in Ukraine or in Syria and whatever? These are the conversations which the business people and the questions which business people always ask. And are these circumstances taking these risks is just unnecessary and stupid? They are not in the rush. They have a lot of time to see. And recent conversation had also one more important factor is CPP. Once it's ratified, once it's concluded, it may change the whole dynamics of investment there in sight. The community in Vietnam is a cheap production base as opposed to the Russian forest, which is not about to join TPP anytime soon. So this is also an important calculation about the perspective of Japanese investment. So summing up and open this floor to Q&A, I would say that the scheme which Ambassador Togo and Jean suggested that Japan may start removing sanctions by its own and reach out to Russia, talk to Putin, will not do the trick of unlocking investment opportunities for the companies in Japan to invest into Russia because they are, at the end, not part of Japanese government but commercial enterprises driven by profit-seeking behavior. Thank you so much. Thank you, Alex. As Alex mentioned, there was quite a bit of agreement amongst our panelists here. But so let me kick things off with a question on a slightly different subject, and that's TPP. I understand that in Russia, there's sort of a commonly held opinion that this is TPP is something of a plot to isolate Russia. Of course, we have Donald Trump, who says it's a Chinese plot to undermine the US. And the Chinese originally thought it was a plot to isolate and contain China. But interestingly, over the past couple of years, the Chinese have sort of come around to looking at TPP as something of an opportunity for them to, assuming it goes into effect, which we have to wait for that, but an opportunity to make some of the reforms to their economy that they understand are necessary to sustain their economy. I wonder if Irina and Alex, you could shed a little bit of light on what the thinking is about TPP and if there's any chance for some of those views to change over time. I've had these conversations in Moscow just two weeks back with the people in the government who are managing the economic policy. And the most interesting fact is that in Russia, nobody believed in TPP unless it was signed. So it came as a surprise. And the conversations you would have in the government were like, listen, it's impossible to make and free trade zone in Asia Pacific without having both the United States and China. So it's never going to happen. And people just were, as Putin is not going to APEC, our business people were not going to APEC, which is Asia Pacific, APEC Business Advisory Council. We have free representative to managers of state-owned financial institutions, VTB and Russian Direct Investment Fund, and Alec de Ripasca, like the only oligarch in top 10 of Russian Forbes who is deeply interested in Asia. They were not going, they were not talking to colleagues and Russian diplomats were not going. So we were illiterate about TPP. Now the conversation goes like, okay, it's not about us because we are a commodity economy in Asia Pacific. Oil and gas are not part of TPP and we realistically want to remain a commodity economy. So TPP is not for us. And we hope that China will not join so it will be much more active in linking the One Belt One Road and Eurasian Economic Union, assumption high cooperation, organization free trade zone and so on. That's part of the conversation. The problem is that exactly the conversation in China is a little bit changing into the mood you mentioned and I see a lot of problems down the road. Like that was the logic of 1990s when Zhurun Xi used WTO accession as sort of outside pressure on the bureaucracy to reform. You see a lot of problem in Xi Jinping implementing the third plan of reform package now. Whether TPP would help and these are very tough conditions for China. Like not localizing, not demanding to localize technology once you set up a plant that's how Chinese build a lot of their industries. It's going to be pretty tough, but let's see. If to say concerning economic relations, Russia and other partners in the region, it seems to me no connections with TPP in short and medium period because now Russia built your relations with partners and with Japan on mutual two sides base. And that's all. I need to remind you that our chairman of parliament, Sergei Naryshkin, dubbed TPP and TTIP as a barbaric attempt of American colonialism to plunder in other states. So. It's political aspects again. I know. Again. And he has a... He and Trump thought I have a conversation. Exactly. If I could ask our other two panelists, just briefly, you talked about JBIC and their interest in financing some of the operations in Russia, can you give us a little bit more information on that and Ed, if perhaps you could comment on the viability of what JBIC may be planning? I'd say that, you know, JBIC clearly understand that the US sanction could limit Japanese investment in Russia by Daros. So in order to clear this, how, in order to clear this sanction, how, and how to impose by sanctions. JBIC, this is official announcement that, yes, that Japan's government or JBIC is ready to finance investment within Russia by yen. That was made in the five economic forum in the Malaysia, Daros, and JBIC, Mr. Maeda. Ed, is it using yen rather than dollars? Make any sort of decision? You know, bankers never say they won't consider financing anything. And generally speaking, bankers, and certainly a bank like JBIC doesn't take business risks. It looks at the credit worthiness of the borrower and the quality of the guarantee. Now, if this is a sovereign guarantee of Russia, that would be one thing. If it's a guarantee from a Rosneft or a Gazprom, you have to look at their balance sheets and make a credit judgment on that. But ultimately, the economic viability of the project that you're financing matters. And this is where I have my doubts as to whether these things are actually gonna take place or not, including China's One Belt, One Road strategy. China's got $3 trillion still, I think, in hard currency reserves, so maybe they can throw some money. But I have my doubts on the $46 billion that China pledged to Pakistan, for example. How viable are these projects? How realistic are they? If the banks are ordered by the government to lend, they will lend. Companies love these projects because that means cheap money to do things and that's how they make money. So it has to come together, but if it's not economically favorable, then it is a taxpayer subsidy from somebody. And that's where I guess I have a problem with. Let me give you an illustration. The Russian pipeline, oil pipeline, to the Far East, was delayed by at least five years because the Russians thought that Mr. Koizumi was gonna give them $7 billion of money to build the pipeline all the way to the Pacific rather than build the pipeline only to China. Well, it turns out that untied aid does not translate in Japanese, so it wasn't $7 billion worth of cash, $7 billion of Japanese goods and services that were being promised. At the end of the day, the pipelines was built to China with really a spur to the coast rather than the other way around. The result of that was that Russia was late. Kazakhstan and the Chinese built the oil pipeline to China first. The Chinese and the Turkmen built the gas pipeline to China first and Russia is late because of the political content in the way the project was being structured. If Mr. Koizumi really wanted a pipeline to the Pacific, he may have picked up the phone and called Wu Qing Tao and said that it would be to both our benefit if the pipeline reaches market and we should work together on such a project rather than separately. But that's not what happened and I'm afraid that this competition allowing Russia to sort of play one country off and another between Korea, Japan and China will lead to slow development of infrastructure for the export oil and gas rather than the rapid development. But I hope I'm wrong. At the end of this, like the oil pipeline, China was on the winning side and Russia on the losing because Russia ended up borrowing money in terms of the credit crunch and building the pipeline and then when the Chinese wanted to adjust the price formula, they simply did it and Russia had nowhere to go but to accept the terms offered to them. That's right. My question is concerning to colleagues and what's the position, at least, what's the position of Jibic concerning financing projects in Russia in spite of functions? And what, at least now, now? Yes, yes, as long as Japan's company has interest in such kind of project, Jibic is ready to, I would say, take the all, not, I... Ready or decisions? I don't mean that Jibic is ready to take all the share of such kind of project but Jibic is ready to lead a kind of syndicate role and to invite and did the wrong syndicate role forming the syndicate role and invite private investors by yen. Yeah, yes. I really would be very careful about such talk as close as we are to Capitol Hill because it just seems to be inviting secondary sanctions by the United States in the financial sector, at least something that people should be aware of. Great. Well, we have about a half hour left and it's time to open it up to the floor and once again, if we can get those of you with questions to identify yourself, keep it to a question and wait for the microphone. We'd like to go first, gentlemen here. Stuart Goldman, formerly CRS now with NCR. Information or question for you, Ed. We're all familiar with the way the surge in energy production in North America growing largely out of the hydraulic fracturing has really changed the energy market. I don't hear anything. Even though China, we know, has very large coal reserves. I don't hear anything. I don't know anything about whether there's anything happening in China regarding hydraulic fracturing and possibly transforming China, China's energy situation in a dramatic way. Well, they've been working at it for, I don't know, last three, four, five years. Early days, the geology is very different from the United States. It goes without saying that the above ground conditions are even more different. So the jury is out on whether China will be able to develop its shale gas potential or not. On paper, according to geological surveys, that potential exists. By the way, the potential also exists in Russia on tidal oil, which also would require a fracking. But it's so far, it's too soon to tell. Chinese complained that the costs are too high, but I'd like to remind them that when we started it, the cost was pretty high, too. But if we can succeed in first discovering the resource and then implementing the best technology, the best oil field practices, then maybe the cost will come down. It's too early to tell. What is clear is that China wants to expand its use of natural gas for reasons that you can well understand. Natural gas happens to be a very small portion of Chinese primary energy, about 6% today. World average would be closer to 20%. They would like to expand that to 10% of primary energy by the end of the decade. So that implies a boost in either domestic production or imports or combination thereof. Which is why the Russian gas pipelines are very important from a Chinese point of view. I just think that they will be delayed because of the economic headwinds, not only in the energy market, but also the fact that the Chinese economy is slowing down. So how fast the natural gas demand will ramp up or not is a bit of a question right now. But the intent is there. Alex, I'd like you to compare three projects. Russia has discussed a lot of late. The Japan energy deals may be discussed less. The Eurasian Economic Union and OBOR, and where that's going, and then the Korean Peninsula projects. And so is there a sense of failure in all three? Is there a sense that one has failed and therefore they're shifting towards another? Is there any momentum towards Japan because of troubles in these other projects? Okay, there are pretty different projects. Japan energy deal, like the choice was always land-based infrastructure to the final consumer being China or diversified consumer base in Asia-Pacific, meaning Japan, and Korea, and China. So I would disagree that you transport that from eastern Siberia, from the two gas fields, Covic to Inche, and to Vladivostok, then liquefied and sell it to Japan. The idea would be to sell it also to Southeast Asia, China, and Korea. The problem is that we never were on time with getting finance, and in 15 years of price boom, we just managed to build one LNG plant, just one in the time of credit crunch. And that seems to be going nowhere for the reasons Ed described in his presentation. Korean Peninsula, I think that Gazprom is really short of cash to build this pipeline for now. It was always risky. I know that the Gazprom people really hated that idea, and they discussed whether we should build an underwater pipeline directly to South Korea, or one going for China, or whatever, but just not going for North Korea. And I think the interest is not there at all. The electricity grid depends very much on the next composition of inter-route management. Same goes for railway project, because Belazerov seems to be cutting, like the new head of railway, that was pet project for Yakunin, but the new guy is cutting capital expenses. That's the first time Erzade is not demanding subsidies and budgetary help from the state budget. So I don't think that the trans-Korean project fits in very well. Orbor-Eurasian Economic Union is a tricky one. Now the major discussion goes whether there will be a Eurasian Economic Union strategy towards One Built One Road, whether that's be coordinated among the five members, or that's going to be bilateral track. I have been with some of Carnegie colleagues last week to Astana, to the club, the Kazakh government negotiated to discuss these issues. And my impression was the Kazakh government is going to do that bilaterally. So Russia has a challenge to lure its five junior partners of the alliance and show them the benefit of talking with one voice. And I think that Russia has real struggles in finding those arguments. And as for the investment projects, the Chinese say, show us the investment projects you want us to finance. And the newest thing which the Russians did is that they repackaged all the projects they brought in 2014 with Shvalov-Changali commission, selected some infrastructure-related projects, and said, this is our proposal for the Orbor. So it's the same set of projects being repackaged so you remove the tack of great bilateral cooperation and put the tack of One Built One Road. That doesn't help it. So it remains to be seen. I think more clarity will be next year as the Shanghai Cooperation Summit nears and that's going to be more, more clarifying position. Let me add one thing about the Rajvastok energy project. You know, the Japanese business circle at this moment doesn't see this project as economically feasible. Let me give you one example. My friend who worked for the Japanese company used to be seriously engaged in this project. Now he moved to Baku. This is a clear example that this Japanese company doesn't see this project as economically feasible or politically feasible. Okay, Ambassador? Well, from what I have heard from presentation of some distinguished panelists, I am not pessimist and realist. I am over, how to say, over a joyful person about Russia-Japanese economic relations because for such gloomy picture I was not expected as I have heard. But it's okay. My question is about TPP. It's 6,000 pages, as I know. So maybe no one read them. Well, absolutely. But my question is, of course, all these steps they will be implemented in the long run. It may take, well, finally 20, 30 years. But okay, if someone can say finally what will happen to economic situation in this region if all these 6,000 pages will be implemented and without China. Because I am sure China is not ready and, of course, they will not be ready in quite a long run period. So what we can expect? That's very difficult to predict because as usual the market is deciding these things, right? And again, it's really the market. You are a manufacturing company which has its production base in China and you are relying on the factors like cheap labor, pretty lot of government incentives and so on and so forth, large market there. And then you have TPP and if you relocate your production base to Vietnam you have a duty-free access to American markets and to all markets of member countries. And then there is a simple calculation, right? And whether you calculate the labor costs in Vietnam infrastructure and so on and so forth. So how it will play out in all the different industries is very difficult to predict. But the bet is, as far as I understand it coming from non-American perspective is that the trade inside the group will explode and increase and that what will force other countries to move into the group to be part of it, right? How China, maybe you have one of the conversations about TPP which is happening in Russia is that okay but not so many people want to have these high labor standards, not so many producers want to have these high intellectual property standards so perhaps we can attract some dirty money, right? Not smart money but dirty money to Russia. Chinese are talking about relegating their polluting industries to Kazakhstan so Russia may be hoping to do the same. Again it's open question and remains to be seen in the case of pretty difficult to calculate. Ed? Beyond my competence. Okay. My too. To let you know, TPP is actually something that began in 1994 with Apex Bogor declaration to create a free trade area of the Asia-Pacific and TPP has always been meant to be a stepping stone from the original 12 to all the Apex countries including Russia. The impact, the economic impact actually of the current TPP, the best analysis that's been done has been done by the Peterson Institute for International Economics. They're updating that now that the 6,000 pages are out but the economic impact is actually relatively small. A lot of this is actually a political impact that's more important. Now, if and when China joins that's when the economic impact really begins to take off and Russia and all the other nine countries in Apex that are not members of TPP. The problem is all 12 legislatures in the countries have to approve TPP before it goes into effect or at least 85% of the GDP represented by those 12 countries. Those legislatures have to approve it. It's going to be a difficult slog to get that. We're in the United States. We'll see what happens. We're in a presidential campaign already. So anyway, Admiral Blair. Ambassador Panov, the way you read a thick book in Washington is to turn to the index, look for your own name, read those pages, and then forget about the rest. And that's the way a lot of people read TPP. It will be a battle of special interests which how it affects them. But I wonder if I could get the panel to enlarge a little bit on this idea of the energy markets in Northeast Asia. Ed, you raised that. Maybe you could start and get some comments from others because it sounds like that would be the long-range, durable way to have energy be a net plus for everybody in Asia rather than all of these exquisite bilateral agreements which require political consensus and then economic difficulties and so on. And what would be the elements that countries would have to cooperate on, both consumer countries and supplier countries, in order to have a real energy hub in Northeast Asia for gas or oil or both? If I could begin, a couple of different ideas. One is at least for gas transport infrastructure. Financing requires financial guarantee on the part of the off-taker to take a minimum volume of gas over a long period of time sufficient to amortize the loan that would be required. So the more buyers you get, the more credit-worthy they are, the more robust your project and more likely the banks would finance. So, you know, let's make sure we get the order of magnitude correctly. Power Siberia, this pipeline to China, the Eastern part, is estimated to cost $55 billion between the pipeline and the development of Kavika and Chaiyanda gas fields, both of which are technically very difficult fields to develop. If you were to do LNG, that cost will go on top of that. So a guarantee from Japanese companies, Kogas and the Chinese companies together would make a lot of sense if you support that kind of scale of development for infrastructure. It would be great to see Japanese, Korean and Chinese companies cooperate in an equity investment in Russia. The business logic is that if you've got three flags behind you, the host government is less likely to renege on the deal than if you were all by yourself. Interestingly, the only project like that that I'm aware of with Asian partners is ONGC and CNPC Encyclin 1. So there's scope for cooperation that lessons are spread to risk across different partners for a project that may be financially risky that you don't want to take so risk on. That's the way the business logic works. The political policy logic may be different. It was only a few weeks ago that the heads of governments of the three countries met for the first time in a few years. I have no idea what they talked about. The energy ministers are supposed to have an annual trilateral meeting, Korea, Japan and China. Again, I have no idea what they talk about. I think the last time you and I were both in Seoul, we met with the secretariat of the group that handles the trilateral commission and the diplomats who were assigned to that commission really couldn't explain to us what they do. So putting real meat on policy intent to create success stories on energy investment, particularly development of infrastructure will go a long way to building confidence and building a market. Now some of these have kind of happened organically. When Fukushima happened, most of the Chinese crude production from Sudan went to Japan because it was used for direct burning to generate power rather than to China. So business should be handled as business if at all possible would be my recommendation. And getting those first names out of the company names would also be a good move. Move the company headquarter out of Beijing, I keep telling my Chinese friends, because otherwise you're always going to be seen as an arm of the Chinese government to all potential partners. So the problem is certainly not only in Japan but in all three major energy importers in the region. On the financial side, I would perhaps add to your mix not only getting the several flags behind the deal but also getting a new multilateral institutions like AIB which mandate is exactly to support infrastructure investment. Like the BRIC's new infrastructure bank is about this, right? So getting this multilateral organization which are going through the learning curve and more and more resembling the parents like ADB or Wall Bank and becoming really pretty world-class financial institution. We need to see the deal but that would be a way. And also regional energy hub and there are compositions of the players there how the price is being set and so what would be also pretty important for me. Like Chinese is experimenting with the new hub in Shanghai on gas but it's also tied up to the price reform in China so I think the hubs are also important for this. Alex, since you mentioned AIIB, I'll make a shameless commercial for one of our recent publications any of you can pick up. Pick up just outside. It's on AIIB with different views from the United States, Japan and China. I think it makes an interesting read. We have time I think for just one more question and in the back. Juliana on the energy ventures LLC. I had a message, a message, a question. Well a message for Ed. I don't think CNPC is in Sakhalin 1. It's Sodeco. The Japanese company. I'm sorry? CNPC is not in Sakhalin 1. You mentioned the companies in Sakhalin 1 at Sodeco. The Japanese companies are there in ONGC together and Rosnift. But I had a question about Sakhalin 2 expansion. Where you see that going and the cooperation with Sakhalin 1 on the LNG projects potentially? Well I mean I think Sakhalin 3 was supposed to be the source of additional gas for the third train. But now it looks like it's not going forward. So I assume that this conversation between Rosnift and Gasprom is going on. You know I really don't know what Exxon's position is on expansion of Sakhalin 1 to include gas at this point. I mean clearly Exxon always took the position that pipeline gas to China was the way to go for a long, long time but that is blocked partly because of Gasprom's export monopoly on gas. But now with the sanctions the business risks have gone up and whether that's something that, I would think that that would be one element of uncertainty at least. So it would be good. I have to go back and look on Sakhalin 1. I thought the Chinese were in one of the Sakhalin projects but I may be wrong. But certainly ONGC and CNPC are partners together in Sudan. So I mean there are the international practice whether Exxon Mobile or Chevron or Total or E&I is try not to take so risk in a country if you can help it. The idea if you want to be international major is to put as many eggs as possible and as many baskets as possible in order to hedge against a Libya or something happening that you don't have too many eggs and one basket that can actually ruin your company. So you develop the project and then you spin off some equity in order to spread risk. And now this is something I think the Asian companies can at least consider whether they should do or not and given that they have many similar needs as far as energy supply is concerned. I wish this were a topic that the Asian companies and the governments that support them discuss more. May I drop my five cents into this? Because many people expected that some sort of decision will be made during the recent meeting of the Strategic Energy Commission under President Putin because it hasn't been meeting for one year and people thought that there would be some decision but it hasn't produced any. So my uninformed expectation would that it really takes some time to... Well, they have something more urgent to discuss right now which is defending energy revenue against the needs of the finance ministry when government take has dropped so tremendously. Remember that it's Russian government that takes most of the hit on oil price collapse not the companies. Yeah, the companies are good. Okay, I'd actually add the view from the Japanese business on the side of the expansion problem. Actually, a couple of years ago I was visited by the official of the Japanese company which had some interest in this project. And they frankly told me that actually we are not eyeing at the Sakharin-Suis-Sauskrisky gas field as a real source of gas for this project because actually exploration activity at the time was conducted by Gaspern and they got Gaspern technology to realize the exploration of the South-South gas field. This is very difficult, deep-water gas field. So that was before actually, before the grand crisis. They clearly said that we are only eyeing at Sakharin-Suis-Suis-Suis-Suis gas for our project. So, finally, they started to talk directly with the Losnich and actually the Sakharin-Suis-Suis-Suis-Suis-Suis-Suis as far as I understand Losnich was assigned to read the negotiation to talk talking of the price on gas. So basically, as far as I understand even ExxonMobil understand that now Losnich, the Sakharin-Suis-Suis-Suis-Suis-Suis-Suis should talk with Gaspern on their especially gas price. If the gas price would be acceptable for the Sakharin-Resus investors it could be impossible that Sakharin-Resus investors sales to Sakharin- город but the price It's very tough. Just to give the context to the audience, of course, LNG pricing has also dropped along with oil prices. So this makes the economics much more difficult because basically Japanese LNG import prices are more or less index against the Japanese cocktail. And the price of oil dropped from $110 to $45 or so. Irina, I want to give you the last word. By the results of our conversation, I haven't changed my mind concerning the future of Russian-Japan economic relations, moderately pessimistic. And I believe that the future is not in gas and oil, maybe not only gas and oil, but in building common production chains, value chains with participation, Russian and Japanese companies, maybe in the far future. But I believe this model already effectively worked in Southeast Asia, in America, and other regions. It's possible. Thank you. Thanks. Great. I agree. Thank you all, and if you'd all join me in thanking our speakers. And before we break, I just want to mention that we'll be back with our final panel in 15 minutes. So if you can all be back here at 3.45, I appreciate it. Thank you.