Russia pushes to cement energy ties to China

Author: us-russia
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Russia pushes to cement energy ties to China
Published 21-02-2013, 05:02
Marriages are founded on love, but bilateral relations between would-be superpowers are based on energy supplies. Russia's biggest oil company Rosneft is looking to cement the Kremlin's desire to tie the knot with Beijing by opening talks to raise oil supplies to China.
Rosneft CEO Igor Sechin met with Chinese Vice Premier Wang Qishan in the Chinese capital at the weekend and opened talks with state oil companies Sinopec and CNPC to increase crude exports, Rosneft announced on February 18. Rosneft also said that it was toying with the idea of inviting CNPC to participate in upstream projects. "The sides discussed a wide range of issues about increasing oil supplies to the People's Republic of China as well as participation of the companies in mutual work in upstream and downstream sectors, both in Russia and China," Rosneft said in a statement. 

Rosneft said it is also in discussion with Chinese offshore oil and gas specialist CNOOC about the possibility of participation in joint projects to tap offshore deposits. After selling off its last large identified oilfields in December, Russia is entering a new phase where the emphasis will be on exploration as it searches for new deposits to supply the world with energy over the long term. The main thrust of this effort will focus firstly on the country's continental shelves. 

On the table is the potential to double crude exports – currently 300,000 barrels per day - to China. Everyone is wooing Beijing, thanks to its rapid development and 1.1bn population. Given that relations with the US are bad and getting worse, Moscow has committed itself to competing with Washington for China's attention. Playing the oil card was always the trump in Moscow's hand, and now it is coming out. 

Russia has fewer options than the US, as it is much more exposed to the Chinese economy than most other countries in the world. That dependence will only increase as trade between Asia and Europe - the fastest growing route on the planet according to report by Goldman Sach's last year - increases over the next two decades. 

The bid to boost crude exports is also a Russian bid to tap into China's biggest resource - cash. Moscow is reportedly in talks to secure $30bn in oil-for-loans. The Russian economy is slowing, and the make or break of the economy this year will be the Kremlin's success in boosting soggy investment, which is currently sagging to around 7% of GDP. For long-term sustainable growth, Russia needs capital investment growth of at least 25% a year. 

If the deal to double the volume of oil sold to China goes ahead, it would become Russia's biggest customer in the world, and account for around 20% of all exports. It would also cause problems for Europe, as it would divert supplies away to the east. Given its dwindling production levels, Russia can't supply both. 

In yet another bid to finally increase energy tis between the pair, Rosneft also says it has offered to study a possible partnership with China in developing liquefied natural gas (LNG). The state-controlled company agreed last week to consider a project to build an LNG plant on the Pacific island of Sakhalin with US giant Exxon Mobil. 



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