23 September 2018
Rosneft’s decision to pump seven million tons of oil annually to China via Kazakhstan will mean an additional US$2.3 billion to US$2.5 billion in revenue for Russia each year. Photo: Bloomberg
Rosneft’s decision to pump seven million tons of oil annually to China via Kazakhstan will mean an additional US$2.3 billion to US$2.5 billion in revenue for Russia each year. Photo: Bloomberg

Russia and China edging ever closer to deal on gas

China is dramatically increasing its imports of crude oil from Russia and the two countries seem to be on the verge of huge deals involving natural gas, of which Russia holds the world’s largest reserves.

One indication of the size of the deals both signed and pending is the report from Russian Energy Minister Alexander Novak last week [Nov. 13] that revenue derived from Rosneft’s decision to pump seven million tons of oil annually to China via Kazakhstan will mean an additional “US$2.3 billion to US$2.5 billion” in revenue for the state each year.

That is only a small part of the picture as Russia is planning to triple its oil exports to China over the next decade. However, an accord on gas, which has proved elusive despite years of talks, is now believed to be near.

When President Xi Jinping visited Russia in March, he and Russian President Vladimir Putin agreed to “carry out cooperation in the energy sector”, with petroleum and natural gas heading the list.

At the time, the Russian energy company Gazprom said it had signed a 30-year agreement with China National Petroleum Corp. to deliver natural gas to China by pipeline.

But that was not a binding agreement. In September, when Xi and Putin met again at the G20 summit in St. Petersburg, Gazprom issued a press release saying it would supply at least 38 billion cubic meters of gas per year to China. However, there was no agreement on price.

When Prime Minister Dmitry Medvedev visited China in October for the annual bilateral meeting of prime ministers, he publicly stated his hope for an early agreement.

At a joint press conference with Premier Li Keqiang, Medvedev said: “During our negotiations, great attention was paid to the topic of oil and gas. I hope that all the documents that were signed will be implemented. Hopefully, the agreements on gas we are about to achieve soon will be turned into documents in a very short time.”

Russia has been asking for price levels for its natural gas similar to those it agreed with European countries while China argued for much lower prices, citing shorter distances. The Russians apparently have made considerable concessions since then.

The two countries have set the target of US$100 billion in trade in 2015 and US$200 billion in 2020. With trade at US$88 billion in 2012, the 2015 target looks within reach and, at this rate, the second target should be reachable too.

But Russia is concerned that it is turning into a raw-materials supplier for China. Putin has mentioned more than once that he would like to see China import more machinery from Russia. Thus, Xi and Putin agreed that the two countries would “promote the diversification of trade structure”, but this is more easily said than done.

Russia seems to have overcome its previous reluctance for China to play a part in developing Siberian natural resources. Last month, Rosneft and China National Petroleum Corporation announced a preliminary agreement to set up a joint venture with Rosneft holding 51 percent and CNPC the balance to explore for and produce oil and gas in eastern Siberia.

The two countries have also been talking about new arms sales. CCTV announced at the time of Xi’s state visit to Russia that China would buy 24 SU-35 fighter jets from Russia as well as commission four jointly built super-quiet submarines. However, the deal has not been finalized, apparently because of Russian apprehension that China would reverse-engineer the fighter and then market it to other countries.

Russia and China have been coordinating their positions on issues such as Syria. However, their differences are reflected in Russian policies towards China’s neighbors.

In a paper endorsed by Putin and issued earlier this year, Russia explained that one of the priorities of its foreign policy was to develop friendly relations with both China and India, a country with which China has a disputed land border. Russia last week handed over to India a refitted aircraft carrier.

Russia is also selling arms to Vietnam, which has a heated dispute with China in their maritime border. Putin was in Vietnam last week and promised to increase arms supplies to Hanoi. Russia is already Vietnam’s biggest arms supplier.

And Russia last week for the first time held high-level talks involving its foreign and defense ministers and those of Japan, whose relations with China are distinctly unfriendly because of a territorial dispute.

So while Russia’s economic well-being may increasingly be tied to China, it appears that Moscow is improving its relations with China’s neighbors for security reasons.

[email protected]; Twitter: @FrankChing1





Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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