Sino-Russian Energy Deal

Published in BENCHMARK Apr/May 2013, Vol.11 No.3

By Marcus Svedberg and Kristina Sandklef

The fact that Xi Jinping, the newly appointed paramount leader of China, chose Russia as his first official visit abroad shows the importance of Sino-Russian relations. In fact, Putin chose China as his first official visit abroad when he was reelected Russian president last year. It would be a little bit too daring to say that China and Russia, or even the BRICS, are in an alliance, but there are definitely converging interests in foreign policy between the two countries, such as opposing the United States hegemony. This does not mean that the two former enemies are best friends today, there is still a certain amount of distrust between the two, but now mutual economic interests are becoming more important to them.

When Xi was in Moscow, several deals between Chinese and Russian energy companies were signed, often with the financial blessing of the China Development Bank providing cheap loans or investments as support. Rosneft agreed to triple its oil deliveries to China from 300,000 barrels per day to 1 million barrels per day, which would make Russian oil exports to China as big as China’s current imports from Saudi Arabia – its biggest oil supplier today. Similarly, Gazprom made a deal with China National Petroleum Company (CNPC) to provide 38 billion cubic meters of natural gas to China starting in 2018 – a deal that has been discussed for many years. The actual price of the gas is still not set, but the two counterparts are said to be closer to an agreement on this, than they ever have been. Other energy deals that were made were in the coal sector, where China will invest in Russian coal mines and transport infrastructure to get the coal to China.

This will make China more dependent on Russia for its energy supply, especially oil and gas. And Russia will be able to expand its oil and gas exports beyond European markets. However, it is important to note that the majority of these energy supplies will come from Eastern Siberia and the Russian Far East, and the pipelines from these areas are not always connected to pipelines heading west. In fact, Gazprom agreed to construct gas pipelines from the eastern route rather than the western route into China via the Altai mountains in Western China, which will make it harder for Russia to be a “swing supplier” between China or Europe.

It is interesting to see how Sino-Russian economic interests are complementing each other and how the two countries are supporting the other’s economic growth. To the Russian market, this means that oil and gas located in the eastern part of the country will be sold to China. To China, the Russian energy deals are helping to secure Chinese economic growth, which is heavily dependent on energy supplies from abroad.

Xi’s visit to Moscow was thus a success for Sino-Russian cooperation and securing the Chinese energy demand. Perhaps the nationalistic Chinese netizens that demanded to get Outer Manchuria or a big chunk of the Russian Far East back on the eve of his leaving for Russia were easier to forget when China inked large oil and gas deals with its big neighbor.BM

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