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23-26 April 2019 • Moscow • Crocus Expo

China-Russia oil & gas relationship tightens

The East is full of promise. China, the world’s preeminent developing economy, is thirsty for oil & gas. With significant purchasing budgets, billions in exports are on the table. Russia is ready to pounce with a big Asian energy pivot.
China-Russia oil & gas relationship tightens
A closer Sino-Russia relationship has the potential to completely overhaul where and how Asia gets the bulk of its energy supplies. With Chinese influence spreading through the continent, its increased hydrocarbons trade with Russia is likely to have a knock-on effect in regional energy imports amongst other powers.

Closer Russia-China energy ties highlighted by major gas deal

Power of Siberia pipeline
Image: © Gazprom

In the forested wilderness of Eastern Siberia, a steel serpent is snaking its way through hostile country into Northern China. Thick clouds of exhaust fumes spread through the crisp Siberian air, as massive machines carve a path through acres of thick Russian soil, while engineering teams wrangle kilometres of pipeline from Siberian oil fields to the Chinese border.
This is the enormous Power of Siberia pipeline, the first eastward-facing natural gas pipeline built by Russia. It will suck substantial volumes of gas from Gazprom’s vast Siberian acreages, and pump it over 3,000km to a processing plant in Amur, bordering China’s northern reaches. From the Amur facility, gas will flow into China’s energy-intense regions over a 30-year period.
December 2019 is the pipeline’s go-live date, when the $400bn, 30-year supply deal between Gazprom and Chinese buyers CNPC begins. For Gazprom, the Power of Siberia pipeline is its biggest, most-expensive project to date. Costs estimates are as high as $55bn, although Russia’s number one energy company stands to make substantial profit off the terms of its supply deal.
“The eastern route has the same strategic importance for Gazprom as the western,” Alexander Medvedev, Gazprom’s deputy chairman, told the Financial Times. “Having concluded a single contract, China equalled our largest European consumer.”
Chinese gas demand and Vladimir Putin’s Asian pivot are coinciding. The Russian president has been courting closer diplomatic ties with China, and energy exports it seems are the way to China’s political heart. 
For context, Chinese gas demand is set to triple between now and 2030. Asia’s largest economy will require as much as 550 billion cubic metres (bcm) to satiate its energy demands. Gazprom’s deal covers supplies of up to 38bcm, a comparative drop in the ocean, but China’s sheer appetite for hydrocarbons products means long-term potential is exceptionally high.

Russian oil exports turn away from Europe in favour of China

Russian oil tanker
Image: © Pete via Flickr
Europe and Russia’s fraught relationship is becoming something of an advantage for Chinese oil importers. While Russian European exports fall away, China’s imports rise in a trend forecasting a larger slice of the growing Chinese oil market for Russian firms.
Shipments out of Russia’s Baltic Ports, where it’s Europe-bound ship-borne cargoes come and go, have dropped 19% between January-May 2018. As indicators for future lower exports go, that’s a big one.
Conversely, pipeline exports to China are practically booming. Transneft, Russia’s Kremlin-owned pipeline monopoly, states Russia has sold 43% more oil year-on-year to its southeasterm neighbour from January-March 2018. For 13 consecutive months, Russia has been the chief oil supplier to China, knocking Saudi Arabia into second place. 14.6% of all Chinese oil imports are sourced from Russia, averaging over 1.32 million bpd.
Rising export volumes have been aided by a by a second Sino-Russian pipeline beginning operations in January 2018. Via the Eastern Siberia-Pacific Ocean pipe, a direct link between Russian oilfields and Chinese refineries has been established.
Elsewhere, the way China buys oil and petroleum products from Russia is being examined. Oil futures have been launched in Chinese currency, reducing both partners reliance on the petrodollar for deal making. While it makes things easier for Russian and Chinese businesses, the move away from dollar reliance could have seismic consequences – not just in oil trading, but in global economics too.
Another geo-political point to make is the potentially growing trade war between China and the US. Europe’s oil intake of US-grades has been rising steadily, in a move more governed by politics than economics. Russian relations with the United States are less than cordial currently, so its Asian oil plays represent a deeper relationship with China on the wider geopolitical stage.

China invests in major Russian oil & gas projects

Amur gas plant under construction
© Gazprom

While a $9bn deal for CNPC to purchase 20% equity in Rosneft has fallen through, China’s national oil company is still deeply involved in strategic agreements and E&P projects throughout the Russian Federation.
For instance, CNPC holds a 20% stake in Novatek’s Yamal LNG plant development. First cargoes have already been shipped via the Arctic Shipping Route from the $27bn facility, adding to yearly Chinese intake of Russian LNG. Novatek and CNPC have signed cooperation agreements, so its relationship will likely continue as long as China needs gas.
Back to the Power of Siberia pipeline and the Amur Processing Plant. CNPC subsidiary China Petroleum Engineering & Construction Corporation (CPECC), has been intimately involved in Amur’s construction, securing an EPC contract in April 2017. 
CPECC is designing, manufacturing and supplying equipment to Amur. It is currently working alongside a specialised Russian entity to build booster compressor shops, with Russian firms handling the automation aspects. Gas Dehydration, purification and fractionation units fall under CPECC’s remit.
Gazprom will continue to work alongside CNPC in the Far East throughout the next two decades. It’s highly unlikely that China’s energy demands will subside anytime soon, especially as its moves from developing to developed economic status.
The above paints a bright picture for Sino-Russian energy cooperation. With that comes enormous deal making potential, as well as potential avenues for investment in Russian energy projects. 
Currently, much of the activity stems from Russia into China, not the other way around, but China is always protective of its assets. Chinese firms continue to make canny business plays, and if the Rosneft deal is any indicator, despite not going ahead, CNPC will be eyeing ownership stakes in Russian majors soon.
For Chinese oil & gas executives, MIOGE, the Moscow International Oil & Gas Exhibition, is the ideal business transaction platform.

MIOGE 2019: Russia’s no.1 international oil & gas equipment exhibition 

The Moscow International Oil & Gas Exhibition is the meeting place for the international community and Russia’s oil & gas industry. Over 560 companies trust the show to let them meet and do business with representatives from across the value chain.
Here, you’ll meet the players behind the Russian oil & gas projects listed above, as well as getting details on Russia’s project landscape from to 2025 and beyond. 
Find procurement, engineering and purchasing specialists exclusively at MIOGE.
Russian majors, including Gazprom, Tatneft, Rosneft and Lukoil, attend the show every year. Why? To meet new partners and suppliers of in-demand oil & gas equipment and technology.
To reserve a stand, click here.
Want more information on how MIOGE can help grow your business in Russia’s enormous oil & gas industry? Contact our team today.