12:00 AM, May 29, 2014 / LAST MODIFIED: 01:53 AM, March 08, 2015

The largest Russian and Chinese gas supply deal

The largest Russian and Chinese gas supply deal

Mushfiqur Rahman

RUSSIAN Gazprom and the China National Petroleum Corporation (CNPC) signed a historic $400 billion contract for natural gas deliveries to China through the eastern route for 30 years during President Vladimir Putin's China visit on May 21, 2014. It is the successful outcome of negotiations for nearly 10 years between the two countries.
The gas supply deal between Russia and China is not only the largest economic cooperation agreement between the two countries but is strategically very significant. Since the development of the Ukrainian crisis, United States and its Nato allies have been increasing their pressure on Russia and threatening to expand economic sanctions. As a result, Russia desperately needed to find an alternative gas export market to its potentially troubled west European market. The gas export deal with China has opened the Asian window of opportunities for Russia. Now, the Russians can afford to feel relaxed.
On the flipside, China, the second largest economy of the world, used to consume half as much energy resources as the USA in 2000. The International New York Times (May 26) reports that China had surpassed USA in energy consumption in 2013 and has now become the largest oil importer in the world. It alone consumes one-ninth of the world's current total oil consumption. The report published by the Organization of Petroleum Exporting Countries (Opec) indicates that China consumes 4.2 million barrels of oil a day. It also imports large volumes of natural gas. In 2013, China consumed about 170 billion cubic meters of natural gas and expects to consume 420 billion cubic meters per year by 2020.
The largest volume of gas supply for China comes from Turkmenistan, the former Central Asian Soviet Republic. China has also started natural gas imports from last year from Myanmar's offshore gas field through the pipelines.
China alone consumes a volume of coal equivalent to the consumption of the rest of the world's total consumption. For its growing needs, China has been continuing its search for petroleum resources, both onshore and offshore. Unfortunately, hydrocarbon fields are difficult to trace nowadays. So, China has to focus on the remote valleys of mountains of Western China in the search for oil and gas resources. Those are agriculture dependent areas and located far from the energy hungry industrial zones near the Pacific coast. On the other hand, carrying oil produced in the western parts of China to the major development centres in the eastern parts of the country is costly.
A similar problem exists with Chinese coal. Although China produces more than 3 billion tonnes of coal annually, the coal rich areas like Inner Mongolia are located far from the industrial centres in the south and the east. Therefore, China has been increasingly importing energy resources including oil, gas and coal from abroad. Major parts of the Chinese oil import comes from the Middle East and a significant part of the oil carrying ships from these petroleum exporting countries pass through the Persian Gulf and the troubled Strait of Hormuz. Chinese import of oil from Iran alone is approximately half a million barrels a day. It also imports oil from Libya, Sudan and South Sudan. Unfortunately, the security situation in these regions, including the difficulties with US sanctions on Iran, has made these sources of petroleum less reliable. Therefore, Chinese oil import as per the United States' Energy Department reports has been re-oriented.
Now China is increasing its oil imports from Oman, United Arab Emirates, Angola, Nigeria, Venezuela, Ecuador, Russia and Iraq (China is the biggest consumer of Iraqi oil now). China has also become the single largest investor and consumer for Ecuador and Venezuela in the oil and gas industries. These two oil-rich countries used to be in the so-called 'US interest areas.' Now oil from Venezuela is exported by Chinese companies to the world market as well as to the US market. African sources are also gradually becoming difficult and challenging for getting secured sources of oil flows for China. Therefore, the deal with Russia for getting piped gas for the next 30 years is very important to China and its economic prosperity. This deal will ease the pressure on the Chinese from the increasing reliance on unstable supply sources. Russia, under the deal, could supply 38 billion cubic meters of natural gas annually, which is equivalent to 15% of its current requirements. Later, the volume of gas supply will increase significantly, to nearly 60 billion cubic meters.
BBC said that there is one pipeline already built, called 'the Power of Siberia,' that runs across Russia's far east to the Chinese border to transmit gas. But for the larger volumes of gas transmission from 2018, as per the latest agreement, additional pipelines will need to be constructed. Russians are particularly pleased as funds from the Chinese side will help continue the pipeline building and other associated construction works for gas transmission. China is already Russia's largest single trading partner. Their bilateral trade flows in 2013 was $90billion.The two neighbours aim to double the volume to US $200 billion in 10 years. The secured flow of Russian gas can help in attaining mutual targets.

The writer is a mining engineer.


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