Russia’s president, Dmitry Medvedev, is due in Beijing at the start of next week for a state visit during which energy deals between the two countries will be on the agenda, particularly kicking on a stalled long-term deal for Russia to supply China with natural gas. The two countries are already striking deals on several energy fronts — coal, oil, atomic power and renewable energies, as well as natural gas — as Moscow seeks to expand its sales to what is now the world’s largest energy consumer and Beijing seeks stable long-term supplies to meet its needs.
At the end of August, a Chinese spur to Russia’s Siberian Pacific Ocean pipeline was completed, part of a 20-year $25 billion loans-for-oil deal between struck in 2008 between China National Petroleum Corporation (CNPC) and Russia’s largest oil company, Rosneft, and its largest pipeline operator, Transneft. Earlier last month, China said it would lend Russia an additional $6 billion repayable in increased coal supplies over the next 25 years. This week, Russia’s Deputy Prime Minister Igor Sechin has been in Tianjin for an annual bilateral meeting on energy, during which three specific oil and coal deals were signed.
Sechin and his Chinese counterpart, Vice-Premier Wang Qishan, also found time to attend a foundation-laying ceremony for the centerpiece of the oil deal, a new $5 billion joint venture refinery that will be 49% owned by Rosneft, 51% by CNPC. Rosneft will supply some two-thirds of the 10 million metric tons of crude a year that will be processed by the Tianjin refinery. This will be the first time a foreign oil company has had such a significant presence this far downstream in the Chinese oil industry, and that will be extended in a planned second stage of at least 500 retail gas stations in China.
The 2008 loans-for-oil deal lets China import 300,000 barrels a day of Russian oil for 20 years starting in 2011 on pricing terms favorable to the Chinese side. Russia is hoping that any natural gas deal it can strike during Medvedev’s visit won’t be so one-sided, though the precedents aren’t encouraging. Late last year, tentative agreement was reached to build two gas pipelines with the capacity to deliver 68 billion cubic meters of Russian natural gas per year, but pricing issued have stalled further progress on a delivery contract for the natural gas. Medvedev is likely to propose a scaled back deal to supply 30 billion cubic meters per year. Given the competition from Central Asian natural gas, he may not be able to make much headway on getting Beijing to pay anything approaching market prices, but even getting the negotiations going again would be progress.