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Russia, China seek greater energy cooperation to offset political risks

Highlights

Rosneft signs crude supply deal with ChemChina

Investment in production and transportation needed to meet Chinese demand

Rosneft, Beijing Gas agree Russian gas filling stations deal

Moscow — Russian and Chinese officials said Thursday they want to promote growing energy cooperation in response to political risks.

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Russia-China energy cooperation has grown in recent years. Initially based on Russia's extensive energy resources and proximity to the growing Chinese market, US sanctions against Russia and now the trade war between China and the US are stimulating this cooperation further.

"Amid the politics of unilateral action and trade protectionism, strengthening Russia-China energy cooperation is extremely important for jointly securing energy security and shaping an open world economy," China's first deputy prime minister Han Zheng said on the sidelines of the first Russia-China energy business forum, according to a statement released by Russian oil producer Rosneft.

Rosneft CEO Igor Sechin echoed this sentiment.

"The nature of the developing political situation, the strengthening of protectionism and the threat of trade wars in the global economy are additional incentives to work more closely together and take decisions more quickly," he said.

Chinese President Xi Jiping and his Russian counterpart, Vladimir Putin, sent letters to the forum supporting greater energy cooperation between Russia and China, Rosneft said.

GROWING COOPERATION

Rosneft struck three deals Thursday to this end. It signed a new, one-year crude supply agreement with ChemChina that envisages shipments of 2.4 million mt of ESPO crude via the port of Kozmino. This would be equivalent to around 48,197 b/d.

"The contract will allow us to increase direct crude supplies to China, which is a strategic market for the company, and ensures a guaranteed cost-effective export channel for the sale of oil," the company said in a statement.

Separately Rosneft agreed to set up a joint venture to develop compressed natural gas filling stations in Russia with Beijing Gas. Beijing Gas will hold a 45% stake in the JV, which plans to build around 170 CNG stations in Russia and consider using LNG as a motor fuel.

It also signed a cooperation agreement with Hengli Group. The companies are considering cooperation on upstream, refining and petrochemicals projects in Russia and China, as well as oil and petrochemicals trading.

Russia and China have significantly increased energy cooperation in recent years, signing new oil and gas supply contracts and agreeing to cooperate on upstream projects in Russia.

Sechin underlined Rosneft's key role in this rising cooperation. "Last year, Rosneft supplied about 40 million mt of oil, thereby providing about 6.5% of China's total demand. The company is aware of its leading role and responsibility in ensuring China's energy security," Sechin said.

He added that over the next 20-25 years, China's demand for oil and gas will grow by 125 million-250 million mt of oil and 350-550Bcm of gas. "These needs can largely be met by increasing supplies from Russia. For this we have to create conditions to attract investment in production and transportation of energy," he said.

Sechin listed the East Siberia-Pacific Ocean oil pipeline, Power of Siberia gas pipeline and Yamal LNG as key areas of development. He sees oil and gas projects offshore in the Arctic and the Russian Far East, as well as further development of shipping via the Northern Sea Route as potential growth areas for cooperation.

Sechin said investment in existing and developing energy projects in the East of Russia with target sales markets in China is around $100 billion.

"We see synergies from these interactions, Chinese banking services are more in demand, there is the opportunity to build vertically integrated networks and we have opportunities to work together in other countries," Sechin said.

Russia is also looking to expand cooperation on petrochemicals, power and coal projects with China.

Leading Russian energy companies including Transneft, Gazprom, Tatneft and Russneft as well as Russian natural resources minister Dmitry Kobylkin took part in the event, with CNPC, China Gas and Beijing Gas joining officials on the Chinese side.

--Rosemary Griffin, rosemary.griffin@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com