Russia becomes the leading crude oil supplier to China

Russia has become the leading supplier of crude oil to the People’s Republic of China (PRC), said Alexander Novak, the Minister of Energy of Russia. It is also one of the leading suppliers of electric power to this East-Asian state. Mr Novak made these statements after taking part in the meeting of the Russian president Vladimir Putin with his Chinese colleague Xi Jinping during BRICS summit in Brazil, reports TASS news energy.

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Alexander Novak, the Minister of Energy of Russia. Image credit: Ministry of Energy of Russia.

“Russia has become the leading supplier of crude oil to the PRC. In 2018 it supplied 67 million tonnes of oil worth $35 billion, an increase of 27.4% to 2017. Russian exports of coal increased by 7.6% in 2018, reaching 27.6 million tonnes. We are also a leading supplier of electric power to China, in 2018 Russia supplied 3.1 billion kW⋅h,” says Mr Novak.

He also noted that Russian energy companies, such as Novatek, Rosneft, Gazprom Neft and Sibur Holding are looking for opportunities to intensify cooperation with China. At the same time, some important energy projects in Russia, such as Yamal LNG, are being developed in partnership with the Chinese investors. He also stressed out that there were good perspectives for cooperation with Chinese companies in the development of the Russian Arctic oil and gas provinces.

These facts mean that the “energy alliance between Russia and China is being formed”, concluded Mr Novak.

Russia has been looking to diversify its energy exports for many years as a reaction to the European policies aimed at decreasing Europe’s dependence on Russian oil and gas. Capitalising on the country’s geographical location, the Russian government supported the development of the eastern export routes for crude oil and later for natural gas. The new routes were aimed at reaching new customers in the Asia-Pacific region, which enjoyed relatively high and stable economic growth since the beginning of the new century. The first section of Eastern Siberia – Pacific Ocean (ESPO) oil pipeline from Taishet to Skovorodino was commissioned in 2009, it was extended to the Kozmino Bay on the Far East coast in 2012. In 2010 a pipeline extension to the Chinese city of Daqing was completed allowing the direct supply of Russian crude oil to the PRC.

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Image credit: Transneft

In May 2014 Gazprom and China National Petroleum Corporation (CNPC) signed the 30-year Sales and Purchase Agreement for Russian natural gas supply to China via the eastern route (Power of Siberia gas pipeline). According to the agreement, Gazprom will be supplying to China 38 billion cubic meters of natural gas per year. Gas supplies via the Power of Siberia pipeline are estimated to start on December 1, 2019. In 2018 Gazprom announced that the company started designing a new gas pipeline to China. The new pipeline would be an extension of the existing Sakhalin – Khabarovsk – Vladivostok gas pipeline, which was initially designed to supply natural gas to Russia’s Far East from the Sakhalin island.

Chinese oil and gas companies are also important customers and active investors in the LNG projects in Russia. Thus, in April 2019 Novatek, Russia’s biggest LNG producer, signed binding agreements with China National Offshore Oil Corporation (CNOOC) and China National Oil and Gas Exploration and Development Company (CNODC) on the acquisition of a 20% share in the Arctic LNG 2 project. China National Petroleum Corporation and Chinese Silk Route fund also own 20% and 9,9% shares respectively in Novatek’s Yamal LNG project.

Russia intensified its cooperation with China after 2014 when Western countries imposed sanctions on Russia as a result of the Ukrainian crisis. Since that time Russian oil and gas companies turned to domestic and Chinese oilfield services equipment manufacturers to substitute supplies from the U.S. and Europe, which were cut due to the sanctions.

 

 

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