BEIJING – Prime Minister Vladimir Putin used a trip to China to clinch oil, natural-gas and nuclear agreements, helping turn Russia into a global energy supplier with pipelines stretching from Berlin to Beijing.
Russian companies signed deals on starting gas deliveries, jointly refining Siberian crude and building Chinese nuclear reactors on a two-day visit to Beijing that started yesterday.
“China is Russia’s economic future,” said Roland Nash, chief strategist at Renaissance Capital in Moscow. “If this relationship works out, it will be a major contributor to the stability and speed of global economic growth.”
Asia’s largest energy consumer is crucial for diversifying Russian energy exports away from traditional markets in Europe. Enemies for most of the Cold War, the two countries are now building relations across their 4,000-kilometer (2,500-mile) border based on China’s appetite for resources and Russia’s ability to deliver them as the world’s biggest energy producer.
OAO Gazprom, the Russian state-run gas exporter, signed a framework agreement with China National Petroleum Corp. that ould turn China into Russia’s biggest single gas customer. The country currently imports no gas from Gazprom, whose web of pipelines still reaches out to Europe.
Igor Sechin, Putin’s deputy for energy, signed an additional accord setting deadlines on future gas supplies. A contract may be ready in June 2010 with deliveries in 2014 or 2015, Sechin told reporters. Shipments could reach China by new pipelines or as liquefied natural gas aboard tankers, he said.
‘Game Changer’
“This potential deal could be a game changer in the Russian gas sector, moving it towards Asia,” said Cliff Kupchan of New York-based Eurasia Group. “Price is the key. No agreement, no deal.”
Gazprom Chief Executive Officer Alexei Miller told reporters the company is seeking a pricing formula similar to the one it uses in Europe, where the cost of gas is pegged to the price of crude. China, the world’s largest user of coal, relies on the comparatively cheap, dirty fuel to power its factories and generate electricity.
Gas is not the only energy source Russia can offer its neighbor, Sechin said. China yesterday agreed to use Russian expertise to construct two additional reactors at its Tianwan nuclear plant.
Russia has also started selling electricity to China from its Far East region. Coal exports to the country will total at least $1 billion by the end of the year, Sechin added.
Oil Deals
Russia agreed in February to supply China with oil for 20 years in return for a $25 billion credit to state oil company OAO Rosneft and the government’s oil pipeline monopoly OAO Transneft.
The total value of oil deals signed with Chinese companies this year is about $100 billion, according to the Russian government. The first segment of an oil pipeline reaching the Chinese border is planned to be finished this year.
Sechin, also chairman of Rosneft, said the company reached an agreement with CNPC yesterday on building a refinery in Tianjin, 100 kilometers southeast of the Chinese capital. The joint project may also involve as many as 500 filling stations, he said.
Chinese money has helped transform Rosneft from a second-tier oil company into Russia’s largest crude producer.
CNPC bought $500 million of shares during Rosneft’s initial public offering in July 2006. Earlier, the Chinese company extended a $6 billion loan-for-oil deal to Rosneft in December 2004, at a time when OAO Yukos Oil Co. was being dismembered under back-tax claims. Rosneft denied that loan was used to buy OAO Yuganskneftegaz, Yukos’s main production unit.
Yukos, once Russia’s largest oil exporter, pushed the construction of a pipeline to China during the 1990s.
The plan was never realized after Yukos CEO Mikhail Khodorkovsky was jailed on fraud and tax evasion charges that he claimed were politically motivated. Rosneft acquired most of Yukos’s assets at auctions after the company was declared bankrupt in 2006.
