Prof. ST Hsieh
Director, US-China Energy Industry Forum
February 4, 2022
It is reported around the world (see following articles in full) today, during the Putin-Xi summit in Beijing before the grand opening of the 2022 Beijing Winter Olympics, Russia and China have reached a big energy deal valued at US$117B. Of course, this deal further strengthening the Russia-China alliance with major geopolitical implications. Specifically, the US would view it as a major challenge to Biden’s foreign policy strategy of re-claiming the global leadership. Especially right now, the US and Russia are facing off at the Ukraine crisis. The root cause of the crisis is energy supply. The worst-case scenario is the US goes to war with Russia in Europe and Russia could turn-off natural gas supply to Europe which would trigger a global energy crisis. So, the Russia-China energy deal reached at this sensitive time does get the full-attention over the world.
However, let us put the announced energy deal in prospective.
- The estimated value is around US$117B, but it will be realized over 25-30 years. Even everything goes well as expected, it is less than US$5B per year. In terms of overall Russia-China annual bilateral trade volume, it is less than 5%.
- The estimated natural gas volume is about 1.23 bcf/day. From January through October 2021, China’s LNG imports averaged 10.3 bcf/day, so this project will cover about 10% of China’s daily LNG import volume. The project will enhance China’s energy security, no doubt. However, China can still claim the title as the world largest LNG importer because the remain 90% of LNG will have to be sourced around the world.
- A very significant detail of this Russia-China oil and gas deal is that all the oil and gas will be delivered from Eastern Russia territory. The transport system and source are completely separated from Russia oil/gas transport system to Europe. Essentially, this Russia-China energy deal is not a threat to Europe’s energy security.
- But the deal will be settled in Euro instead of US dollars. Both Moscow and Beijing will diversify from the U.S. dollar and hedge itself against any potential sanctions from Washington.
- Another point of interest is that the deal also included nuclear power plants. The construction of four new power units at Chinese nuclear power plants with the participation of Rosatom State Corporation launched last year is one of them.
It is an interesting time!
Putin hails $117.5 billion of China deals as Russia squares off with WestVladimir Soldatkin and Chen Aizhu Fri, February 4, 2022, 1:17 AM
MOSCOW/SINGAPORE (Reuters) -President Vladimir Putin unveiled new Russian oil and gas deals with China worth an estimated $117.5 billion on Friday, promising to ramp up Russia’s Far East exports at a time of heightened tension with European customers over Ukraine.
Russia, already Beijing’s No. 3 gas supplier, has been strengthening ties with China, the world’s biggest energy consumer, reducing its dependence on its traditional European energy customers.
“Our oilmen have prepared very good new solutions on hydrocarbon supplies to the People’s Republic of China,” Putin said at a meeting with Chinese President Xi Jinping to discuss closer cooperation.
“And a step forward was made in the gas industry,” he added, referring to a new contract to supply 10 billion cubic metres (bcm) per year to China from Russia’s Far East. Putin was in Beijing to attend the Winter Olympics.
The gas sales alone could generate around $37.5 billion over 25 years, according to Reuters calculations, assuming an average gas price of $150 per 1,000 cubic metres as reported by Russian gas giant Gazprom for its current deal with China.
Kremlin spokesman Dmitry Peskov said the deal was for 25 years, while a Chinese industry source said it was for 30.
Separately, Russian oil giant Rosneft, headed by long-standing Putin ally Igor Sechin, signed a deal with China’s CNPC to supply 100 million tonnes of oil through Kazakhstan over 10 years, effectively extending an existing deal.
Rosneft said the new deal was worth $80 billion.
The agreements bolstered the rouble and the Russian stock market, including shares in Rosneft and Gazprom.
Putin has accused the United States of stoking tensions over Russia’s neighbour Ukraine, which has angered Moscow by wanting to join NATO. More than 100,000 Russian troops have amassed near the border with Ukraine. Western countries accuse Moscow of planning an invasion, which it denies.
Russia is Europe’s biggest provider of natural gas, and Western countries are worried that already strained supplies could be interrupted in the event of a conflict. However, the new deal with Beijing would not let Moscow divert gas otherwise bound for Europe, as it involves gas from the Pacific island of Sakhalin, not connected to Russia’s European pipeline network.
Gazprom said in a statement it planned to increase gas exports to China to 48 bcm per year, including via a newly agreed pipeline that will deliver 10 bcm annually from Russia’s Far East.
Under previous plans, Russia aimed to supply China with 38 bcm by 2025. The announcement did not specify when it would reach the new 48 bcm target.
Gazprom, with foreign partners including Shell, already produces more than 10 million tonnes of liquefied natural gas (LNG) per year in Sakhalin.
“Delivering gas to China’s northeastern tip makes this project strategically attractive for China, as the only real alternative supply would be more expensive LNG,” Moscow-based BCS brokerage said in a note about the 10 bcm deal.
An industry source told Reuters earlier on Friday that Gazprom, which has a monopoly on Russian gas exports by pipeline, had agreed a 30-year contract with China’s CNPC, with the first gas to flow through the new pipeline in two or three years.
POWER OF SIBERIA
Russia now sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping LNG. It exported 16.5 bcm of gas to China in 2021, including 10.5 bcm via the Power of Siberia, which is also separate from the pipelines that send gas to Europe.
Putin was accompanied by several Russian officials and business executives, including Sechin. Gazprom head Alexei Miller was not in the delegation.
China also lifted restrictions on Russian wheat and barley imports.
Russia, China agree 30-year gas deal via new pipeline, to settle in eurosChen Aizhu Fri, February 4, 2022, 1:15 AM
(Reuters) – Russia has agreed a 30-year contract to supply gas to China via a new pipeline and will settle the new gas sales in euros, bolstering an energy alliance with Beijing amid Moscow’s strained ties with the West over Ukraine and other issues.
Gazprom, which has a monopoly on Russian gas exports by pipeline, agreed to supply Chinese state energy major CNPC with 10 billion cubic metres of gas a year, the Russian firm and a Beijing-based industry official said.
First flows through the pipeline, which will connect Russia’s Far East region with northeast China, were due to start in two to three years, the source said in comments that were later followed by an announcement of the deal by Gazprom.
Russia already sends gas to China via its Power of Siberia pipeline, which began pumping supplies in 2019, and by shipping liquefied natural gas (LNG). It exported 16.5 billion cubic metres (bcm) of gas to China in 2021.
The Power of Siberia network is not connected to pipelines that send gas to Europe, which has faced surging gas prices due to tight supplies, one of several points of tension with Moscow.
Under plans previously drawn up, Russia aimed to supply China with 38 bcm of gas by pipeline by 2025.
The new deal, which coincided with a visit by Russian President Vladimir Putin to the Beijing Winter Olympics, would add a further 10 bcm, increasing Russian pipeline sales under long-term contracts to China.
Gazprom gave few details about the deal in its announcement.
Russian gas from its Far East island of Sakhalin will be transported via pipeline across the Japan Sea to northeast China’s Heilongjiang province, reaching up to 10 bcm a year around 2026, said the Beijing source, who asked not to be identified.
The deal would be settled in euros, the source added, in line with efforts by the two states to diversify away from U.S. dollars.
Discussions between the two firms began several years ago after the start-up of Power of Siberia, a 4,000-km (2,500-mile) pipeline sending gas to China. Talks accelerated more recently after Beijing set its 2060 carbon neutral goal, the source said.
“China’s coal shortage last year served as another wake-up call that natural gas has its special value, that’s why CNPC decided to top up with the new pipeline deal,” the source said.
A CNPC representative did not immediately respond to a request for comment.
The pricing of the new gas deal will be similar to that of Power of Siberia, the source said, adding that both were “fairly satisfied” with that arrangement.
The deal is expected to weigh on China’s LNG import outlook.
“Piped gas from Russia can be supplied to northern China at prices that are competitive when compared with LNG,” said Ken Kiat Lee, analyst at consultancy FGE.
The IEA said in a report last week that China will remain the single largest country contributor to LNG import growth, but with a growth rate dropping to 9% in 2022 from 17% in 2021 due to the ramp-up of pipeline flows from Russia and the overall slowdown in gas demand growth.
(Reporting by Chen Aizhu in Singapore and Vladimir Soldatkin in Moscow and Marwa Rashad in London, Editing by Timothy Heritage and Kirsten Donovan)
Closer energy partnership gets spotlight in Xi-Putin summit in BeijingBy Global Times staff reporters Published: Feb 04, 2022
Closer energy cooperation between China and Russia was a major focus for the top leaders of the two countries who met Friday in Beijing, just ahead of the opening ceremony of the 2022 Beijing Winter Olympics.
Valuing Russia as a reliable source of energy for China, observers say the partnership between the two will enhance sustainability of global supply chains.
China has plans to strengthen energy strategic cooperation with Russia, push for mega oil and gas projects, accelerate major tech innovations in energy, explore new energy partnerships and support each other’s efforts to safeguard energy security, read a Chinese statement after the high-profile meeting between President Xi Jinping and his Russian counterpart Vladimir Putin on Friday in Beijing.
Chinese and Russian government officials signed an array of agreements of cooperation on major areas, said the statement, without elaborating.
“Those deals might cover energy, which is already an area of close cooperation between oil and gas exporter Russia and the world’s top energy consumer China,” said a report by the Reuters.
“The statement by the top leaders of the two countries sets the tone for future cooperation on energy,” Liu Qian, executive deputy director, from Center for Russian and Central Asian Studies with China University of Petroleum (Beijing) told the Global Times on Friday. He added that the two countries are actively conducting energy technology cooperation in recent years.
The two nations have a lot of room for cooperation in LNG production and energy infrastructure build-up, Liu said, explaining that Russia faces some challenges in energy sector transformation and modernization.
As to future energy corporation, Liu said it’s envisioned to include the China-Russia east route, Arctic LNG 2 project, and the Tianwan and Xudabao nuclear power plants.
On Friday, Russia’s state-owned energy giant Gazprom announced it had signed a long-term agreement with its main Chinese partner China National Petroleum Corporation (CNPC) to supply natural gas to China via the Far Eastern route.
“As soon as the project reaches its full capacity, the amount of Russian pipeline gas supplies to China is going to grow by 10 billion cubic meters, totaling 48 billion cubic meters per year (including deliveries via the Power of Siberia gas trunkline),” according to a statement on Gazprom’s official website.
“This is already a second contract to be signed for Russian gas supplies to China, and it is indicative of the exceptionally strong mutual trust and partnership between our countries and companies,” said the statement, citing Chairman of the Gazprom Management Committee Alexey Miller.
“Our Chinese partners from CNPC have already seen for themselves that Gazprom is a reliable gas supplier,” according to Miller.
China’s trade volume with Russia topped $140 billion for the first time in 2021 as China held onto its position as Russia’s top trading partner for the 12th year in a row.
China’s exports to Russia jumped 33.8 percent year-on-year to $67.57 billion last year, while its imports from Russia, a bulk of which was oil and gas, rose 37.5 percent to $79.32 billion, Chinese customs data showed.
In a signed article carried by Xinhua News Agency on Thursday, Putin said that “a mutually beneficial energy partnership is being formed” between China and Russia. “Along with long-term oil and gas supplies to China, we have plans to implement a number of large-scale joint projects.”
“The construction of four new power units at Chinese nuclear power plants with the participation of Rosatom State Corporation launched last year is one of them. All this significantly strengthens the energy security of China and the Asia region as a whole,” Putin said.
Market insiders said two countries, China, the largest energy importer, and Russia, the largest energy exporter, are displaying a growing interdependence on energy cooperation.
Whether in terms of geopolitics or the complementarities of resources and markets, closer partnership of Moscow and Beijing are mutually beneficial and win-win, Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Friday.