- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
The China and Russia relationship has been a long, complex and volatile one determined mainly by economic opportunism and the lengthy border disputes stretching over 4,200 kilometers long. Ambitious to become key geopolitical players in world affairs, both China and Russia appear to be a great match given Russia’s desire to diversify its exports away from Europe for of demand reasons, and China’s aim to diversify its imports away from the Persian Gulf for of supply.
During the Soviet era, the two states struggled to find mutual ground through which they would strengthen their relationship. The post-Soviet era, however, appears to be based on economic reality rather than political ideology. Due to the oil price volatility in the 1990s, the Russian economy experienced major economic bottlenecks and endured economic hardship, whereas China over the last two decades became an economic superpower with growth rates ranging between 7 and 15 percent.
China’s economic miracle has largely been based on industrial expansion. In terms of nominal Gross Domestic Product, China is the second largest economy in the world after the U.S. and in 2009; China became the largest global energy consumer. As BP’s statistical world review in 2016 indicates, China consumed 3 billion tonnes of oil equivalent energy and surpassed that of the U.S. and the whole of the EU. The U.S.’ primary energy consumption stands at 2.3 billion tonnes, compared to the EU’s 2.8 billion tonnes of consumption. For this very reason alone, the rulers in China have placed particular attention on deepening their commercial and energy ties with Russia to meet China’s increasing oil demand.
Even though they both view each other as potential energy partners, due to historical mistrust and lack of understanding, combined with the protraction in new projects and insufficient infrastructure, the enormous potential in energy relations between Russia and China has failed to get off the ground. In the 1990’s when oil prices were low, Russia, in real need of capital to survive over the coming decades, pushed China to strengthen bilateral relations and expand energy cooperation. China, however, was reluctant to spend billions on infrastructure and was in no hurry to further energy relations.
China was intent on taking advantage of oil deliveries from Russia with maximum price concessions but viewed Russia’s upstream sector as a risky investment even though the Russian government was willing to sell a stake in Russia Petroleum to China’s national oil company, CNPC. Consequently, Sino-Russian energy relations during the 1990’s could be described as modest and limited.
After the inauguration of Russia’s new president in 2000, President Vladimir Putin shifted Sino-Russian relationship to a new stage in which cooperation was enhanced between the partners in commercial fields, economic and energy fields.
Conflict in the Middle East during the 2000’s with the potential to spread to neighboring resource-rich countries was seen as a major risk for the security of oil supplies. At the beginning of the 2000’s, 75 percent of China’s oil supply came through the narrow shipping lanes of the Malacca Straits. With the aim of diversifying its oil supply sources, and to mitigate the risk that could elevate at any time in the lanes of the Malacca Straits, authorities in China began to consider Russia as a crucial energy partner. After long delays in oil transfers through the Straits, Chinese authorities realized that its oil supply diversification strategy could best be served with greater energy cooperation with Russia because of its ability to feed China’s oil market via land rather than sea.
From 1999 to 2007, Russia’s oil exports grew by 50 percent, increasing from 3.5 million barrels per day (b/d) in 1999 to 7 million b/d in 2007. During the same period, Russia’s oil production almost doubled and met 40 percent of the world’s total oil demand growth by increasing from 6 million b/d to 10 million b/d. As soon as one of the biggest oil pipelines commenced construction, the Eastern Siberia Pacific Ocean (ESPO) pipeline, overall production increased by two and a half times in 2010. Since then onshore oil production in Russia increased from 100 thousand b/d to in 2009 to 900 thousand b/d in 2015.
Among the various projects that both sides put on the table, the most important was the ESPO pipeline, signed in 2004 and with a construction start in 2006. Putin said during his inauguration ceremony that the project had ‘broken open a window’ with China in energy deals. The construction of the ESPO pipeline not only broke the link to one of the fastest growing oil markets but helped Russia to unlock East Siberian oil reserves potential.
For the delivery of 15 million tonnes per year up until 2030, Russian oil company Rosneft and Chinese CNPC signed an initial contract worth of US$25 billion in 2009. In the same year, the first phase of the ESPO was complete. This deal was welcomed by the Russian upstream sector and was interpreted as a positive signal for prospective upstream projects. After the completion of its second phase in 2013, the 4,700-kilometer-long ESPO pipeline reached 36 million tons in capacity. Through this pipeline not only was the Chinese oil market targeted, but the ESPO became a strategic transit point for other Asia-Pacific countries as well.
Among the various companies involved in oil exports, Rosneft and CNPC have become some of the most important players. Nonetheless, China’s Sinopec, Russian Lukoil, Surgut NG, , and Bashneft are also involved in oil trading.
In 2014, when Russia annexed Crimea, the Chinese oil service companies seized another opportunity following the heavy sanctions imposed on Russia. In the aftermath of the Ukrainian crises, the western service companies rejected selling oil equipment to Russian companies and forced the withdrawal of their businesses. Eventually, this became a turning point for Chinese companies to sweep into Russia’s oil market.
Once overwhelmed by Western oil companies, Chinese oil equipment manufacturers have easily availed of the opportunity provided following the sanctions. Chinese companies Hongua and Petro-King opened branches in Moscow to meet increasing demand further strengthening relations between Russia and China.
Interaction in the oil sector between Russia and China has been slow but has steadily grown over the years. China’s search for diversification in oil supplies has been perfectly matched with Russia’s eagerness to expand its oil production in its vast eastern sources. Russia has taken advantage of expanding its oil production in the East and has broken through the heavyweight of sanctions imposed on Russia.
Both China and other Asia-Pacific countries have shown a great deal of interest in buying shares in any Russian privatization tenders, while China, either in the form of loan provisions or sales of large quantities of equipment, has been able to secure long-term supplies for its oil market.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.