Russia pressured to lock down energy deals in Asia-Pacific

By Cui Shoujun Source:Global Times Published: 2013-3-11 18:43:01

 

Illustration: Liu Rui/GT
Illustration: Liu Rui/GT



The China-Russia Energy Cooperation Committee meeting held in late February scored a monumental breakthrough as the two countries reached a consensus on expanding the oil trade.

Russian oil giant Rosneft may increase oil supplies to China by over 9 million metric tons, and Russia has agreed to provide 38 billion cubic meters of natural gas to China each year. There were promising signs of the now decade-old negotiations on gas pipelines coming to an end.

Russia is the biggest oil producer and the second biggest natural gas producer in the world, while China is the largest consumer of energy and the second largest oil importer.

Nevertheless, negotiations on energy cooperation were bogged down in the past.

Yet things have changed. First of all, the shale gas revolution of the US has challenged Russia's dominant position in the energy field.

There is often a subtle political relation between natural gas exporters and importers.

Exporters often use gas as a tool to pursue geopolitical interests. Russia has long tried to monopolize the market and manipulate the price of gas.

In 2001, major natural gas exporters established the Gas Exporting Countries Forum in the hopes of establishing an OPEC-like organization and creating a new monopoly. But shale gas ended that.

The large-scale commercialization of shale gas in the US has made the US exceed Russia as the biggest natural gas producer in 2009.

US shale gas also has a price advantage over Russia's natural gas.

In April 2012, the US wholesale price of gas was one-fifth of the import price of Europe and one-eighth of that of Asia.

If the US increases its exports, it will shake the Russian monopoly in Eurasia, so Russia must lock down deals with markets like China now.

Meanwhile, the EU tried to establish a fixed price deal mechanism with Russia in September 2012 and shorten the contract period. In fact, Russia has offered a 10 percent discount to some European countries, a sign of its new weakness.

Europe itself is rich in shale gas resources. The decrease in energy demand due to recession has also contributed to Europe's declining reliance on Russia in natural gas importing.

Another factor Russia has to worry about is the eastward shift of the world's oil and gas consumer center.

Developed countries' energy needs will gradually decrease in the future, while Asian countries, such as China, India, Japan and South Korea, are in a process of accelerating industrialization and urbanization, which will inevitably boost energy demand.

Oil and gas export is one of Russia's strategic pillars, accounting for over 60 percent of Russia's fiscal revenue. If Russia could establish agreements with big consumers in the Asia-Pacific like China, it will greatly help boost Russia's own economic growth.

And Russia could also take the opportunity of jointly developing large gas and oil projects with Asia-Pacific countries to actively participate in the integration of the region, paving a new way to improve the country's international status.

Diversifying energy imports is inevitable for China's energy security. And Russia is making early preparations to participate in the process.

Although China and Russia are adjacent, oil from Russia doesn't account much of China's oil imports. Russia originally wanted to create a balance among countries like China, Japan and South Korea, since it didn't want to heavily depend on China's market.

But due to the implementation of China's "going-out" energy strategy, China has sped up its oil and gas cooperation with central Asian countries like Kazakhstan, and the Sino-Myanmese gas and oil pipelines will be put into operation soon. Russia has to quicken its step in seeking a greater market share in China.

As mentioned above, Russia's adjustment in energy policy toward China is driven by multiple geopolitical factors.

For China, against the background of the US pivot to the Asia-Pacific, cultivating a China-Russia energy community has significant strategic effects.

It takes at least two to three weeks to deliver oil from the Middle East to China, but only three to five days from Siberia. And land pipeline transport is more convenient and safer than maritime transport.

Confronted with a serious energy security situation, China should seize opportunities to close deals with Russia.

The author is a research director of the Center for International Energy Strategy Studies at Renmin University of China. opinion@globaltimes.com.cn



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