Oil deals strengthen China's energy supplies

Workers at China National Petroleum Corp's facility in Tianjin. [Photo / Provided to China Daily]

As two large neighboring countries, China and Russia have strengthened their energy ties by deepening a series of cooperation projects involving oil supply, refining and liquefied natural gas exploration.

China National Petroleum Corp, the country's largest oil and gas producer, announced last week that it had signed an oil supply contract with Russian state-controlled oil giant Rosneft.

The agreement was sealed by CNPC head Zhou Jiping and Rosneft chief executive Igor Sechin in the presence of Russian President Vladimir Putin and visiting Chinese Vice Premier Zhang Gaoli, during the annual Saint Petersburg International Economic Forum.

It followed Chinese President Xi Jinping's visit to Moscow in March, and is the biggest ever between the two countries.

Over the next 25 years, the supply of Russian oil to China will more than triple from the current 15 million metric tons a year to 46.1 million tons a year.

The Russian giant also promised to supply 9.1 million tons of crude annually to the Tianjin refinery - a joint venture between the two companies - when it is put into operation.

CNPC has also gained access to Russia's arctic gas fields by concluding a framework agreement with Novatek, Russia's second biggest independent gas producer.

Under that agreement, CNPC will acquire a 20 percent stake in Novatek's Yamal LNG project and the company will embark on a series of energy cooperation projects, from upstream to downstream, with its Russian partner in natural gas.

Russia, the world's top gas exporter, is now paying increasing attention to energy-hungry Asia as European demand continues to decline.

It has for years tried to secure a deal to sell pipeline gas to China but obstacles involving pricing have stood in the way, until now.

At present, China still has a tight supply of its LNG market, but the expected increase in LNG will boost development of its downstream industry, which is currently limited by gas supply shortages, said Wang Xiaokun, a natural gas analyst with Sublime China Information Co Ltd, a domestic commodities consultancy.

"This project is significant for the company's participation in energy exploration in the Arctic region," said a CNPC statement on the deal.

The plan is that an LNG plant will be built with an annual capacity of 16.5 million tons, with production set to start sometime in 2016.

The project is currently 80-20 percent jointly owned by Novatek and the French oil giant Total.