Russia is actively seeking to deepen its energy cooperation with China, aiming to go beyond the mere supply of hydrocarbons. This endeavor reflects Moscow’s strategic shift towards more integrated and diversified energy collaborations, encompassing advanced technologies, machinery, shipbuilding, and alternative energies.
Expanding the Scope of Energy Cooperation
According to Igor Sechin, CEO of Rosneft, the next phase of the Russia-China energy relationship should focus on enhancing coordination throughout the entire value chain. This would include sectors such as advanced technologies, modern shipbuilding, industrial equipment supplies, alternative energy, emissions reduction, and joint scientific research. Sechin emphasized this vision at the Russia-China Energy Business Forum held in Moscow on July 23, where he called for increased Chinese investments in Russia’s energy sector and related industries. He highlighted the high investment profitability and low risk of capital return as key attractions for potential Chinese investors.
The Investment Landscape
Despite Sechin’s optimistic outlook, Chinese companies have shown caution in replacing Western firms that exited Russia following the Ukraine conflict. Growing international sanctions against Moscow have further deterred Chinese investors. Nevertheless, China has significantly increased its purchases of Russian oil and gas, which has been crucial for Russia as it seeks to diversify its energy markets away from Western nations. According to Chinese Vice Premier Ding Xuexiang, China’s imports of Russian oil grew by 24% last year, reaching 2.21 million barrels per day in the first half of 2024.
Strategic Routes and Infrastructure
Russia is prepared to boost energy supplies using western ports and the Northern Sea Route, in addition to its Pacific outlets. However, shipments through Arctic waters would require constructing ice-class tankers, a task for which Russia seeks collaboration with Chinese shipyards. This potential cooperation could be a significant step in enhancing energy logistics and infrastructure between the two nations.
Navigating Skepticism
Despite the promising outlook, analysts remain skeptical about China’s willingness to become overly dependent on a single energy supplier. During the forum, Vice Premier Ding Xuexiang mentioned that both sides are working on new horizons for cooperation in the oil and gas sector, but specifics were limited.
Deepening Hydrocarbon Exploration
At the intergovernmental commission’s meeting on energy cooperation, both nations agreed to support collaboration in the exploration and production of hydrocarbons onshore and on Russia’s continental shelf. Expanding cooperation in providing oil services and equipment, including hydrofracturing, was also on the agenda. The collaboration aims to attract specialized Chinese companies to facilitate these operations.
Renewable Energy and Carbon Markets
The two countries have committed to holding expert seminars on renewables and coordinating efforts to achieve international recognition for green and low-carbon energy certificates. This initiative is part of a broader energy transition cooperation, which includes sharing experiences in carbon market development and international carbon units trade.
Key Sectors of Cooperation
Coal, electricity, and nuclear power remain critical components of the Russia-China energy dialogue. Beijing supports Gazprom’s plans to supply helium and LPG to China, and both nations aim to promote LNG trade on a commercial basis. Yamal LNG, a strategic project with Chinese shareholders, continues to be a focal point of communication and mutual interest.
The Power of Siberia Pipeline
No significant progress was reported on the Power of Siberia 2 gas pipeline, although Gazprom and China National Petroleum Corp. were encouraged to intensify their contract negotiations. However, Russian gas supplies via the original Power of Siberia pipeline are experiencing growth. In June, Gazprom recorded a substantial monthly revenue of $737 million from these supplies, marking a 30% year-on-year increase.
Revenue Dynamics and Market Shifts
Gazprom’s revenue from exports to China is nearing the levels previously achieved from pipeline gas supplies to Europe, Russia’s prewar key gas market. This shift is significant, although the revenue from Chinese exports is still a fraction of what Gazprom used to earn in Europe. Furthermore, the sales margins are lower due to the reduced price and higher upstream and transportation costs associated with the Power of Siberia pipeline.
Future Projections
Gazprom’s revenue from Power of Siberia is expected to surpass European revenues when the pipeline reaches its full capacity of 38 billion cubic meters per year. However, exports to Europe may decline depending on the future of the Ukrainian transit agreement, which is set to expire at the end of this year. Despite the optimistic projections, Gazprom’s new export contracts with China are likely to yield lower revenue due to Beijing’s stronger bargaining position.
FAQs
What are the main sectors of Russia-China energy cooperation?
The main sectors include hydrocarbons, advanced technologies, machinery, modern shipbuilding, industrial equipment, alternative energy, emissions reduction, and scientific research.
Why are Chinese companies cautious about investing in Russia?
Chinese companies are cautious due to the growing international sanctions against Russia and the risk associated with replacing Western firms that exited following the Ukraine conflict.
What is the significance of the Northern Sea Route in Russia-China energy cooperation?
The Northern Sea Route is significant because it offers an alternative route for energy supplies, which requires constructing ice-class tankers. This presents an opportunity for collaboration between Russian and Chinese shipyards.
How is Russia diversifying its energy markets?
Russia is diversifying its energy markets by increasing oil and gas exports to China, utilizing western ports, Pacific outlets, and the Northern Sea Route.
What are the future projections for Gazprom’s revenue from China?
Gazprom’s revenue from China is expected to surpass that from Europe when the Power of Siberia pipeline reaches its full capacity. However, the revenue may still be lower due to China’s stronger bargaining position and lower prices.
Conclusion
Russia’s strategic move to deepen its energy cooperation with China represents a significant shift in its energy policy. By focusing on advanced technologies, machinery, alternative energy, and scientific research, Russia aims to create a more integrated and diversified energy relationship with China. Despite the challenges posed by international sanctions and cautious Chinese investors, the collaboration holds promise for both nations. The future of this partnership will depend on successful navigation of geopolitical complexities and effective leveraging of mutual interests in the energy sector.
