Russia Signs Oil and Gas Deals With China

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Russia has signed a contract to supply an additional 10 billion cubic meters of natural gas per year to China and has also agreed a 10-year extension of an existing deal to supply China with 200,000 barrels of oil per day.

The agreements mark a strengthening of ties between the two countries at a time of heightened geopolitical tensions between Moscow and the West over Ukraine.

The oil and gas deals were among 16 agreements signed as President Vladimir Putin met his Chinese counterpart Xi Jinping in Beijing, where both leaders attended the opening ceremony of the Winter Olympics.

Gas Contract

State-controlled Gazprom's new 10 Bcm/yr deal with China National Petroleum Corp. (CNPC) is its second gas supply contract with China, following the 38 Bcm/yr Power of Siberia contract, which was signed in 2014.

The new deal — under negotiation since 2015 — is for the supply of gas from Russia's Far East to eastern China. The gas will most likely be sourced from offshore Sakhalin Island via the recently upgraded Sakhalin-Khabarovsk-Vladivostok pipeline.

Gazprom declined to provide Energy Intelligence with the timeline to start delivering the gas or other details. But Kremlin spokesman Dmitry Peskov was quoted as saying that the agreement had a duration of 25 years.

Like the Power of Siberia deal — which was agreed after the West imposed sanctions against Russia over the annexation of Crimea — the new deal has a strong political component to it, said Sergei Kapitonov, a gas analyst at the Skolkovo Energy Center.

The current tensions with the West may have persuaded Gazprom to agree to offer a price discount to China, Kapitonov said.

On the other hand, the timing of the deal might be favorable for Gazprom, given current high gas prices and the ever-growing competition that pipeline gas faces from LNG, he added.

Gazprom has also been holding talks with China about several other potential supply deals with China — including the 50 Bcm/yr Power of Siberia 2 pipeline that would run via Mongolia — but it has struggled to reach an agreement on pricing.

Oil Deal

Russia's top oil producer Rosneft and China National Petroleum Corp. (CNPC) also agreed to extend their existing crude oil supply contract for another 10 years.

Under the extension agreement, Rosneft will supply 100 million tons over 10 years (about 200,000 b/d) to western China via Kazakhstan.

The original 10-year deal was signed in 2013, with supplies starting on Jan. 1, 2014. Volumes were initially set at 7 million tons per year (140,000 b/d), but were later raised to 10 million tons/yr.

The deal includes a swap arrangement, under which Rosneft ships crude oil to refineries in Kazakhstan, while that country exports crude to China.

Peskov said Rosneft supplied 50 million tons (1 million b/d) to China in 2021.

Russia is China's second-largest crude oil supplier after Saudi Arabia. According to its customs data, China imported a total of 1.6 million b/d of Russian crude in 2021.

Rosneft and CNPC also signed a memorandum of cooperation in which they agreed to look at ways they can work together on reduction of greenhouse gas emissions, energy efficiency and carbon capture and storage.

Russia and China have both set targets of achieving carbon neutrality by 2060.

Rosneft also inked an agreement with Chinese company Huawei about information technology and digitalization.

Presidents' Joint Statement

Putin's visit to Beijing coincided with a tense stand-off between Russia and the West, with large numbers of Russian troops stationed on the border with Ukraine as Moscow presses its demands for security guarantees.

Russian Foreign Minister Sergei Lavrov said Putin had explained Russia's position to Xi and had received the Chinese leader's full support.

Putin and Xi issued a joint statement that opposed further expansion of Nato, called on all countries to respect national sovereignty and urged the US to drop plans to deploy short- and medium-range missiles in Europe and Asia.

The statement also said that the two countries "oppose power politics, bullying, unilateral sanctions and extraterritorial application of jurisdiction."

Gas Supply, Oil Term Contracts, Military Conflict, Sanctions, Security Risk
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