China grows wary of closer Russian energy ties, owing to US relations

By DINA KHRENNIKOVA
Bloomberg

China is wary of expanding energy investments in Russia because closer ties with the Kremlin could harm its relations with the US, according to a former researcher at China’s biggest offshore explorer.

The government in Beijing isn’t prepared to jeopardize economic links with the US, said Chen Wei Dong, who resigned as chief researcher for China National Offshore Oil Corp.’s Energy Economics Institute in May. The US is viewed as a “global” partner while Russian ties are regional, he said.

Russia is turning to Asian markets after President Vladimir Putin’s annexation of Crimea led the US and Europe to impose sanctions, including oil and banking restrictions. Russia’s biggest energy exporters are targeting China, the world’s largest consumer, yet progress on supply deals has stalled after crude and gas prices declined.

“If Russia has bad relations with the US, this may make it more difficult for China to build better relationships with Russia,” Chen said in an interview in Moscow last week. “China is looking for a balance.”

The East Asian nation needs to safeguard its relationship with the US because, while the two don’t trade oil or gas, they are key economic partners. US trade with China reached $590.4 billion last year, according to the US Census Bureau, while Russia-China trade was $95.3 billion, Chinese customs data show.

Cautious Stance

Russian exporter OAO Gazprom already supplies liquefied natural gas (LNG) to China from its Sakhalin LNG plant in the north Pacific Ocean. Putin, keen to expand trade further, struck a deal last year to pipe gas to China for 30 years through a new East Siberia link, and is pushing for a second supply contract.

Yet China may take a cautious stance, having seen gas deliveries in Europe disrupted during pricing disputes between Gazprom and transit country Ukraine.

“Many people say: we can import gas from Russia but we have to keep it at a certain level, 15%, maximum 20%,” said Chen, who has about 30 years’ experience in the offshore energy industry. “Otherwise we will become too insecure, too dependent.”

Russia halted deliveries to Ukraine in 2006 and 2009 after its former Soviet ally amassed debts for gas imports. The conflict interrupted gas transit to Europe and caused shortages in several countries.

Putin’s $400 billion piped-gas deal with China took almost a decade to pull off. Negotiations on a second 30-year supply agreement, outlined in a framework accord last November, are yet to produce a firm contract.

Russia expects to supply China with as much as 68 billion cubic meters a year by 2030, meeting about 11% of the country’s piped gas demand and making it Gazprom’s largest customer, according to a company presentation. The exporter targets a later increase to as much as 100 billion cubic meters/year, a plan that deputy chairman Alexander Medvedev said was “realistic” in June.

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