A business trip to China in mid-June by a delegation from Russia's Tatneft oil company was just the latest in a series of meetings heralding a new era in energy co-operation between the two countries. This trip ended with the signing of a co-operation agreement with Daqing oil field. It envisages the joint development of new technologies, according to Tatneft's chief geologist. The Daqing oil deposit is one of world's 10 biggest oil deposits with an annual production of 50m-55m tons. There are many similarities with the Romashkinskoye oil deposit, which produces around 80m tons a year, representing 60 percent of Tatneft's hydrocarbon production.
Earlier, during the visit to Moscow by Chinese Premier Zhu Rongji, Russia's First Deputy Prime Minister Yuri Masliukov stressed the importance of co-operation in the sphere of fuel and power, which he described as "the primary issue in Russian-Chinese relations." Energy is one of the few dynamic sectors in Russia and is viewed as the engine to pull Russia's economy out of its crisis. However, falling world oil and gas prices have seriously affected many companies such as the huge Gazprom. Entry into the Chinese market is seen as a lifeline.
During its four-day visit to Moscow, the Chinese delegation signed 11 agreements with Russia on cooperation in business and trade, science and technology, transportation and other fields. They include four accords on oil, natural gas and electricity.
China, according to one estimate, will need to import 50m tonnes of oil a year by 2010 to support its economic growth. But it is short of oil, gas and electricity and has begun a programme of acquiring concessions to develop oil fields in South America, Africa and east European countries. Chinese oil companies, including China National Petroleum Corporation (CNPC), which owns nearly 350 oil fields and produces about 140m tonnes of oil a year (90 percent of the country's total), is already operating in Sudan, Thailand, Papua New Guinea and Kazakhstan. Also, several oil contracts have been signed with Iraq while cooperation is developing with Kuwait and Saudi Arabia.
Russian-Chinese talks in Moscow focused mainly on energy and a number of projects were discussed. These included oil supplies to China by Russian oil company Yukos. Under an agreement signed in February, Yukos will supply an additional 500,000 tonnes of oil to China by the end of this year, bringing the total for 1999 to 1 million tonnes. In the initial stage existing oil flows will be readjusted. Later, Chinese oil companies will finance joint oil development projects in western Siberia.
Pipeline construction is also on the agenda. Yukos and Transneft, on the Russian side, and CNPC have signed an agreement to conduct a feasibility study on laying a pipeline from Angarsk in Siberia to China. This will export 25m-30m tonnes of Russian oil a year, one-third of which will go to other countries in the Asia-Pacific region through Chinese ports.
In addition, a study will be conducted on the feasibility of developing the Kovyktino gas condensate deposit in Siberia and building a pipeline to export this to China. The deposit is currently being developed by the Russian RUSIA-Petroleum Co in which Sidanco owns a 60.5 percent stake. The deposit is estimated to contain 1,500bn-2,000bn cubic metres of recoverable natural gas. The study is expected to take two years to complete, and another three years will be required to lay the pipeline.
Kovyktino gas should to begin to flow to China in 2005, after which the pipeline may be extended toward South Korea, and later to Japan. The pipeline will transport 30bn cubic metres of natural gas a year – one-third to China, one-third to Russia and one-third to other countries. CNPC is interested in buying a share in the project.
Gazprom may also supply China with natural gas from north-western Siberia. This project provides for building a pipeline to Shanghai, capable of transporting 30bn cubic metres a year.
In May the national oil and gas company Sakhaneftegaz, located in the Russian republic of Yakutia, signed an agreement with the CNPC for a feasibility study on the construction of a gas pipeline from Yakutia to China. Deliveries of up to 20bn cubic metres of gas is scheduled to begin in 2005. Gas would be exported from deposits in western Yakutia. The total volume of natural gas reserves in these deposits exceeds 400bn cubic metres. The Sakhaneftegaz company was established in 1992 and it has been granted exclusive rights on the territory of Yakutia republic.
As well as oil and gas, energy cooperation is expected to extend to electricity supplies. United Energy Systems (UES) of Russia has signed a cooperation agreement with China and is proposing the development of a Russia-China ‘energy bridge' to allow substantial electricity exports from Russia. UES and Irkutskenergo will act as coordinators for construction of the electricity bridge. Equipment suppliers and the construction company will be selected by tender. The cost of this project is estimated at US$1.5bn, with Russia and China accounting for 30 percent, and 70 percent to be financed from borrowed capital. Repayments will amount to US$300m-400m a year. UES has also agreed to train Chinese personnel and to provide expertise in the development of a unified grid system.
Russian power plants in Siberia have sufficient capacity to export up to 15bn-18bn kW/h of electricity to China. UES is presently supplying electricity to China from the Amur region using existing cables and is to double deliveries from 30m to 60m kWh. Chinese participation in the construction of the Bureya hydroelectric plant in Russia's far-east is also under consideration.
In terms of nuclear power, a Russian-Chinese project is currently underway to build a US$3bn nuclear power plant in Lianyungang.. Russia is to construct two light water V VER-1000 units and, if they are a success, China may order another two power units. All these projects will help to develop the economically depressed region of north China.
Russia is hoping to make China its principal non-CIS partner country, not only a market for raw materials but also a consumer of Russian power plant equipment. Currently China ranks third among Russia's non-CIS trade partners, after Germany and the US. Trade with China constitutes five percent of Russia's foreign trade value and totalled US$6.13bn in 1998. If all the planned energy projects are realised, trade turnover may increase to US$20bn a year in the next six years.
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