Gas deal with Rus­sia of­fers longer-term se­cu­rity

Pact will give China a sta­ble en­ergy source and a stronger hand in talks with other sup­pli­ers, re­ports Du Juan

China Daily (Canada) - - BUSINESS -

China has signed a se­ries of en­ergy deals with Rus­sia that will en­sure se­cure sup­plies for the world’s sec­ond­largest econ­omy.

“This is a his­toric mo­ment for these two gi­ant economies, which have formed an al­liance for en­ergy co­op­er­a­tion that can main­tain a re­gional bal­ance and avoid in­ter­ven­tion from theUnited States in Asia,” saidHanXiaop­ing, chief in­for­ma­tion of­fi­cer of China En­ergy Net Con­sult­ing Ltd.

Dur­ing Rus­sian Pres­i­dent Vladimir Putin’s two-day visit to Shang­hai, Chi­nese and Rus­sian of­fi­cials an­nounced a com­pre­hen­sive en­ergy part­ner­ship that will deepen co­op­er­a­tion in oil, nat­u­ral gas, coal, util­i­ties and in­fra­struc­ture con­struc­tion.

Bi­lat­eral agree­ments were signed that are meant to en­sure China has a di­ver­si­fied sup­ply of en­ergy and Rus­sia gets more cap­i­tal for its do­mes­tic de­vel­op­ment.

On Wed­nes­day, Sta­te­owned China Na­tional Petroleum Corp and Rus­sian’s top gas ex­porter Gazprom OAO signed a 30-year nat­u­ral gas sup­ply con­tract val­ued at $400 bil­lion. The deal has been in the works for about two decades.

Gazprom will sup­ply China with 38 bil­lion cu­bic me­ters of gas an­nu­ally start­ing in 2018 via the east­ern gas pipe­line.

The price wasn’t of­fi­cially an­nounced, but Reuters quoted sources say­ing it is about $350 to $380 per 1,000 cu­bic me­ters.

Han said the price lies be­tween the cost ofChina’s gas im­ports from Cen­tralAsia and Rus­sia’s ex­port price to Europe.

“The price will be­come more ac­cept­able in the fu­ture as the yuan grows stronger, as­sum­ing the deal runs smoothly for 30 years,” he said.

More im­por­tant, the price will help China in fu­ture ne­go­ti­a­tions with other gas sup­pli­ers, in­clud­ing liq­ue­fied nat­u­ral gas pro­duc­ers, ac­cord­ing toHan.

“China’s im­ported LNG price is higher than the deal price with Rus­sia,” he said.

The price agreed to with Rus­sia “will give China more clout in bar­gain­ing with other sup­pli­ers in the fu­ture”, he said.

Other Asian en­ergy pro­duc­ers can ben­e­fit from sell­ing re­sources to China. Mean­while, a se­cure en­ergy sup­ply in China will con­trib­ute to the sta­bil­ity of the whole Asian re­gion, he said.

In ad­di­tion to the nat­u­ral gas sup­ply deal, CNPC signed a con­tract with No­vatek OAO for LNG pur­chases. The Chi­nese com­pany also signed an agree­ment with Rus­sia’s Ros­neftOAO­for crude oil sup­plies for their joint ven­ture re­fin­ery in north­ern China’s city of Tian­jin.

The other State-owned en­ergy gi­ant, China Petro­chem­i­cal Corp (known as Sinopec), en­tered into a strate­gic co­op­er­a­tion agree­ment with Rus­sia’s OAO Sibur Hold­ing, a gas pro­cess­ing and petro­chem­i­cals com­pany.

As part of the co­op­er­a­tion, the par­ties will dis­cuss the po­ten­tial ex­pan­sion of trad­ing op­er­a­tions and look into col­lab­o­ra­tion op­por­tu­ni­ties in gas pro­cess­ing and petro­chem­i­cal projects.

Sinopec said this part­ner­ship will help di­ver­sify and se­cure the com­pany’s longterm sourc­ing of petro­chem­i­cal prod­ucts and ex­pand its over­seas foot­print.

Sibur said the deal will help it max­i­mize the ef­fi­ciency of new large-scale projects and ex­pand its com­pe­ten­cies and dis­tri­bu­tion mar­kets.

As part of the pact, the com­pa­nies will es­tab­lish a joint ven­ture for a bu­ta­di­ene nitrile rub­ber plant at the Shang­hai Chemical In­dus­try Park. Sinopec’s share in the joint ven­ture will be 74.9 per­centandSibur’s will be 25.1 per­cent.

The par­ties also signed a tech­nol­ogy li­cens­ing agree­ment for the use of Sibur's bu­ta­di­ene nitrile rub­ber pro­duc­tion tech­nol­ogy at the new fa­cil­ity. Sibur’s spe­cial­ists will par­tic­i­pate in es­tab­lish­ing the new fa­cil­ity’s pro­duc­tion and commercial op­er­a­tions.

“Such tech­nol­ogy ex­changes and JV co­op­er­a­tion will help theRus­sian com­pany ex­pand its Asian mar­kets and raise the com­pet­i­tive­ness of the Chi­nese com­pany in the field,” saidHan.

• June 2012

• De­cem­ber 2012

• March 2013

• May 2014

Rus­sia-based miner En+ Group Ltd and the world's largest coal pro­ducer, Shen­hua Group Corp Ltd, reached an agree­ment on coal ex­plo­ration in the Zashu­lan­skoye project near the Rus­si­aChina bor­der. The two said they an­tic­i­pate gain­ing the ap­proval of au­thor­i­ties within two years.

As a coal-rich coun­try, Rus­sia will help China to di­ver­sify its re­source sup­ply. This co­op­er­a­tion is a ma­jor as­pect of Shen­hua’s over­seas ex­pan­sion, which is in line with China’s strate­gic re­sources poli­cies, said Deng Shun, coal in­dus­try an­a­lyst with Shang­hai-based en­ergy con­sul­tancy ICIS-C1 En­ergy.

It is Shen­hua’s first coal project in Rus­sia. In ad­di­tion to co­op­er­at­ing in tra­di­tional en­ergy, the two coun­tries also have huge po­ten­tial for joint work in al­ter­na­tive en­ergy and re­new­ables in­clud­ing so­lar and wind power, said Xia Yis­han, se­nior re­search fel­low at the China In­sti­tute of In­ter­na­tional Stud­ies.

He said China’s ad­vanced tech­nol­ogy in so­lar power plants can ben­e­fitRus­sia.

Ev­geniy Kony­gin, chair­man of en­ergy pol­icy and uti­liza­tion with the Rus­sian Fed­er­a­tion League of In­dus­tri­al­ists and En­trepreneurs, said the two coun­tries should co­op­er­ate on al­ter­na­tive-en­ergy projects, an area where China has many tech­no­log­i­cal ad­van­tages.

China’s State Nu­clear Power Tech­nol­ogy Corp has said it plans to co­op­er­ate with Rosatom State Atomic En­ergy Corp for es­tab­lish­ing float­ing nu­clear power plants, an area whereRus­sia has high lev­els of tech­nol­ogy and vast ex­pe­ri­ence. Guo Haitao, as­so­ciate dean of the School of Busi­ness Ad­min­is­tra­tion at the China Univer­sity of Petroleum, said it is promis­ing that China and Rus­sia have taken a gi­ant step in en­ergy co­op­er­a­tion. How­ever, they need to es­tab­lish clearly each side’s rights and re­spon­si­bil­i­ties. Con­tact the writer dujuan@china daily.com.cn

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