Russia, China set to promote oil cooperation, soonest start of gas supply to China

Russia and China intend to broaden cooperation in the oil industry and promote the soonest start of Russian gas supplies to China, the leaders of the two countries said in a joint statement adopted upon results of talks between Vladimir Putin and Xi Jinping in the Chinese city of Shanghai on Tuesday.

According to the document, the two countries agreed “to step up comprehensive Russian-Chinese energy partnership, broaden complex cooperation in the oil industry, promote the soonest start of Russian gas supplies to China, enhance cooperation in the coalmining industry, including through development of deposits in Russia and development of transport infrastructure and active development of construction projects of new power-generating facilities in Russia for a higher electricity export to China.”

Russia and China have signed 6 inter-governmental energy agreements over the past year. More than 20 agreements were signed between Russian and Chinese companies. The sides managed to reach agreements on a number of strategic projects and move closer to forming an energy alliance.

Launch of Eastern Siberia - Pacific Ocean oil pipeline

The launch of the Eastern Siberia - Pacific Ocean Oil Pipeline (Russia and China are implementing a large-scale project valued at more than $60 billion for deliveries of crude oil to China on a pipeline running from Skovorodino in Russia to Mohe in China) and contracts signed by the Russian oil company Rosneft (in June 2013, Rosneft signed a 25-year-long $270 billion contract for the delivery of 360.3 million tons of crude oil to China with the Chinese National Petroleum Corporation - CNPC) laid down the foundation for fruitful cooperation.

Gazprom's gas deliveries

Gazprom’s contract for gas deliveries will be the next step. In 2013, Gazprom and CNPC signed a memorandum on pipeline deliveries of Russian gas to China “on the eastern route”. Liquefied natural gas (LNG) exports from a plant in Vladivostok, the Russian Far East, may help increasing the predicted gas delivery volumes. Russia and China are planning to sign a contract for delivery of 38 billion cubic meters of gas in the course of 30 years. Real supplies can start in 2018-2020. The project will mean diversification of gas supply routes for Russia and will help China to cut its energy deficit.

Other areas of energy cooperation include NOVATEK’s “Yamal LNG” gas project, Rosneft’s plans to increase oil supplies by sea as well as joint development of several fields on Sakhalin Island and in Eastern Siberia.

According to expert calculations, by 2030 China’s oil needs will account for 60% of oil demand in Asia. At the moment, China receives 40% of its oil from the Middle East.

 NOVATEK and CNPC sign contract on supply of 3 million tons of LNG

NOVATEK and CNPC signed a contract of supply of three million tons of liquefied natural gas (LNG) a year. The signing ceremony took place within the framework of Russian President Vladimir Putin's official visit to China.

"We signed the basic terms last year, and now we've signed the finalized contract: three million tons," NOVATEK head Leonid Mikhelson told reporters.

LNG will be supplied within the scope of the Yamal LNG - the contract envisions the development of the Yuzhno-Tambeiskoye gas field and the construction of a plant with a capacity to produce 16.5 million tons of LNG and one million tons of natural gas liquid a year.

Three phases of the plant construction project are envisioned, each will successively increase the capacity by 5.5 million tons a year. The first phase of the plant is due to be commissioned in 2017.

NOVATEK has a 60% stake in Yamal LNG, CNPC has a 20% stake, and France's Total has another 20%.