Russia’s Energy Bluff with China

Yesterday Bob blogged about the challenges faced by Russia and China in building a strategic energy partnership. Today Kommersant has more details, including a revelation that although China was Rosneft’s biggest oil importer in 2007, the company loses $40 on each ton sent to China rather than the west. At least Moscow and Beijing can agree to work together against the U.S. missile shield…

Energy contradictions With this said, energy issues remain the most challenging ones. In the course of Vladimir Putin’s visit to Beijing in March 2006 Russia and China agreed to set up an unprecedented energy alliance: Russian and Chinese state corporations drafted big contracts on Russian energy carriers supplies to China. Then the construction of the Eastern Siberia–Pacific ocean pipeline followed, which will soon have a branching to China from Skovorodino. But in recent years the realization of many of these projects has bogged down in disputes between Russia’s Rosneft and China’s CNPC over the price.

“Rosneft calculated that it loses $40 on each ton supplied to China, rather than the West,” Mikhail Krutikhin, RusEnergy analyst says. “Sergey Bogdanchikov (Rosneft CEO – Kommersant) has already appealed to the government urging that it decide whether the price is negotiated or the contract is broken, with the Russian party paying a forfeit.” In this case talks about signing a contract on supplying 50 mln tons of oil from 2010 to 2015, which are held by Rosneft and the CNPC, will be jeopardized. The arguments of the Chinese counterparts boil down to the fact that the CNPC helped Rosneft buy the assets of YUKOS, so, the Russian company now owes the Chinese one.As a result, constructing the Chinese branching of the Eastern Siberia–Pacific ocean pipeline has been jeopardized as well. Mikhail Barkov, Transneft Vice-President, doesn’t rule it out that Dmitry Medvedev and Hu Jintao will discuss the matter personally, but he adds that no representative of the company has gone to Beijing with the President. “We have accomplished project works on the Skovorodino–China’s border section,” Mikhail Barkov told Kommersant. “But it is the government that will decide on the future of the branching.” Mikhail Krutikhin presumes that the Russian government will have to take a decision in no time. “If the pipeline goes further to the Pacific ocean coast, the project will have to be altered urgently: the carrying capacity will need to be boosted, and terminal and oil ports projects will have to be changed,” Mr Krutikhin argues. It’s quite probable that Dmitry Medvedev will have to address these contradictive issues, with Rosneft CEO Sergey Bogdanchikov accompanying him.There is barely any hope to negotiate gas contracts. According to Gazprom representative Sergey Kupriyanov none of those on the board of the gas giant has set off for China with the President.To conclude with, the current visit to China will be a real trial for Dmitry Medvedev. His reputation in the eyes of his Chinese partners will much depend on his ability to succeed in addressing the challenges. By the way, Moscow has already secured itself against a failure. According to the information of Kommersant, Vladimir Putin is going to pay a visit to China this fall. And if Dmitry Medvedev’s visit doesn’t turn out that fruitful, Russia’s Prime Minister will have to address the issues on the Chinese front.