Russia and China's largest energy companies on Friday announced a "breakthrough" deal paving the way for joint development of massive energy reserves in eastern Siberia, in a sign that Moscow is overcoming its fear of Chinese encroachment on Russia's Far East.
Russia and China's largest energy companies on Friday announced a
"breakthrough" deal paving the way for joint development of massive
energy reserves in eastern Siberia, in a sign that Moscow is overcoming its
fear of Chinese encroachment on Russia's Far East.
Their preliminary agreement illustrates how
Moscow
is
increasingly looking to
Asia
for
customers for its abundant energy reserves, and for funding to develop them. Russia's
needs tie in with expected long-term demand growth in oil and gas-deficient
China and elsewhere in East and South Asia, and slowing energy consumption in
many industrialized nations.
Russian state oil giant OAO Rosneft and China National Petroleum Corp. said
that under a Memorandum of Understanding signed during Rosneft President Igor
Sechin's trip to
Beijing
on
Thursday they would explore for, and produce oil and gas in eastern
Siberia
.
Rosneft and CNPC would form a joint venture, the companies said Friday in
separate statements, with Rosneft taking 51% and CNPC holding the rest.
They plan to develop an oil field that Rosneft gained full control of this week
by consolidating 100% of the Taas-Yuryakh oil firm, Rosneft said. CNPC said
that the two would also collaborate closely to develop several large-scale oil
and gas fields.
"The oil produced will be used to meet the energy demand in eastern
Russia
and
then exported to
China
and
other Asia-Pacific countries through the Russia-China crude pipeline,"
CNPC said. The agreement "is a new breakthrough reached by the two sides
in upstream cooperation, and will surely promote future cooperation in the
downstream businesses and other sectors," it added.
Rosneft, the world's largest listed crude producer, agreed in June to increase
crude-oil exports to
China
by
300,000 barrels per day in a deal valued at $270 billion.
Moscow
has
been reluctant to give
China
direct access to its oil resources through direct stakes in oil fields, but
recently has been more flexible.
In June, it approved CNPC taking a 20% stake in OAO Novatek's Yamal liquefied
natural gas project in
Russia
's
Arctic
. It isn't
the first such investment, though. Sinopec Group has also had a stake with
Rosneft in a small project called Udmurtneft since 2006.
The growth in Russia-China energy links also comes at a time global energy
trade flows are being rechanneled by growing competition from huge reserves of
hydrocarbons now being freed from shale rock formations in
North
America
. Coal and gas normally sold to the
U.S.
is
being displaced to
Europe
, in turn undermining demand
for Russian gas which normally meets about a quarter of
Europe
's
needs.
"Geopolitically,
Russia
realizes it has to work with
China
,"
said Ildar Davletshin, an energy analyst with Renaissance Capital in
Moscow
. "In
Europe
,
Russia
is
being squeezed and all the demand is shifting toward
Asia
, so
it is getting harder for
Russia
not
to invite
China
in. The
Chinese have always been knocking on the door."
In the past, Russian officials said they sought Western energy giants as
partners for their technical expertise in areas like offshore development,
where Russian companies had little experience. Chinese companies, meanwhile,
usually were limited to deals where they provided capital and markets, but
didn't get large equity stakes.
The energy trade between Russian and
China
could
quadruple by 2025, consultancy Wood Mackenzie said in a September study.
"As legacy West Siberian oil production declines,
Russia
is
undergoing a period of renewed interest in exploring and developing the energy
resources of its
Far East
and
East
Siberia
regions. These key provinces are sparsely populated, highly
resource-rich and adjacent to a large and resource-hungry Chinese population,
and their development is a major priority for the Russian government,"
said Wood Mackenzie analyst Paul McConnell.
Earlier this week, Vagit Alekperov, president of OAO Lukoil Holdings,
Russia
's
second-largest energy company, said in
Beijing
that
he didn't foresee any barriers to Chinese investment in Russian oil projects.
It's not only oil and gas. Last month, state investment fund China Investment
Corp. took control of a 12.5% stake in Russian potash producer Uralkali JSC.
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