IEEJ：February 2016 © IEEJ2016

Current Status and Future Prospects ofSino-Russian Gas and Oil Cooperation

IEEJ Seminar
Prof. KEUN-WOOK PAIKSenior Research Fellow

FEBRUARY 1, 2016

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Table 1. Comparison of China and Russia, as of 2015.
China

Russian FederationArea

9.6 mn sq km

17.1 mn sq km

Population

1.401 bn

0.142 bn

Population Density

140 / sq km

8.4 / sq km

CapitalBeijing

Moscow

Largest City

ShanghaiMoscow

Government

Unitary socialist
republic

Federal semipresidential Republic

GDP (nominal)

US$ 11.385 tnUS$ 1.236 tn

GDP per capita

US$ 8,280

US$ 8,447

Foreign reserves

US$ 3.33 tn

US$ 0.36 tn

Military expenditure

US$ 216 bn

US$ 84.5 bn

Source : IMF World Economic Outlook (Oct 2015) & other sources

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Current Status of Sino-Russian Gas and Oil
Cooperation and its implications towards Bilateral &Multilateral Gas and Oil Cooperation in Northeast Asia
Changed Environment :• Oil Price Collapse in summer 2014
• US & Russia’s Pivot to Asia policy competition• LNG : Pendulum move from Seller’s market to Buyer market• Global climate change does matter
From Bilateral to Multilateral Cooperation :• Bilateral (Sino-Russian gas cooperation) vs. Multilateral(Russia-China-South Korea-Japan gas cooperation)• East Africa LNG supply Hub : from Bilateral to Multilateral
cooperation, based on Asian Consumers Alliance – Mozambique
Block I and Block IV unitisation scheme• Arctic Northern Route oil and gas supply to Northeast Asian
consumers : the option that cannot invite any conflict of interest
among the players

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Update of Sino-Russian Oil Cooperation• ESPO played the pivotal role in strengthening the cooperation• 2013 two major oil supply deals – Rosneft & CNPC (US$ 270 bn ),and Rosneft & SINOPEC (US$ 85 bn).
• Before oil price collapse in summer 2014, CNPC was evaluating thethree buy-out targets – Taas-Yuriakh 49%, Vankor 10%, and Rosneft
19.5%, but none of the target transactions was made, while ONGC
took the 15% stake of the Vankor.
• In June 2015, Rosneft agreed to supply 2.4 mt/y of crude to China
National Chemical Corporation (ChemChina), and in September 2015,Rosneft agreed to purchase a 30% of ChemChina Petrochemical Co.
Ltd., a ChemChina subsidiary.
• In early September 2015, Rosneft and SINOPEC signed the HOA on
cooperation within the proposed joint development of Russkoye andYurubcheno-Tokhomskoye fields. Sinopec Group has the right toacquire a 49% stake in ESOGC and Tyumenneftegaz, that hold theexploration licenses for Russkoye and Yurubcheno-Tokhomskoye
fields respectively.
- Good intentions with strong need to cooperate !!

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Drastic Increase of Energy Flow from Russia to AsiaJOGMEC (2015)

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Table 2. Projected Oil Production of Northeastern Provinces :2005-2015
Unit : mt/yDaqing
Jilin
LiaoheTotal
2005 (P)

45.0

5.5

12.2

62.7

(A)

44.95

4.58

12.26

61.79

2010 (P)

34.71

5.89

10.57

51.17

(A)

39.87

6.10

9.50

55.47

2014 (A)

40.00

4.93

10.22

55.15

2015 (P)

30.00

6.00

9.35

45.35

(A)

38.39?

10.37?

Source : Author’s data base

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Update of Sino-Russian Gas Cooperation• In May 2014, the deal of long waited POS (Power of Siberia) I gas supply toChina, with the 38 bcm/y (US$ 400 bn worth) was a major breakthrough ofSino-Russian gas cooperation, and in Nov 2014 the MOU on POS II (or Aatai)
gas supply (with 30 bcm/y) to western China was a big encouragement.
• Oil price collapse in mid-2014 had deprived any significance of the two gas
supply deals. The US/EU sanctions against Russia with regard to the Crimean
Peninsula annexation drove Japan to hold back from the Vladivostok LNG
Project, which requires Japan’s commitment (market and financing provision)for the start of this project.
• In early September 2015, Novatek and China’s Silk Road Fund (SRF) signed
an agreement for the purchase of a 9.9% equity stake in the Yamal LNG
project. The completion of the deal will make the shareholder structure as
follows : NOVATEK (50.1%), Total S.A. (20%), CNPC (20%) and SRF (9.9%).
• At that time, the conversion of POS II’s MOU into a binding agreement was
not materialised. Instead, Gazprom had announced the option of a third gas
pipeline for its Sakhalin gas export to China via Sakhalin-KhabarovskVladivostok line.
- A big question is whether Gazprom’s strategy can protect its pipeline gas
market in China? Can Gazprom’s monopoly on pipeline gas export to Asia bejustified?

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Source : Gazprom (2014)

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Gazprom’s POS I Development Scheme needs to be revised under thecurrent oil price regime.
• POS 1 development scheme is based on Chayanda gas and Kovykta gas
development scheme with US$ 55 bn investment. When Vladivostok LNG
3 trains scheme cannot move without Japan’s LNG market provision, it isdesirable to take the staged development as there is not enough market tohandle the 61 bcm/y gas supply by 2025.
• POS 1’s priority is to supply 38 cm/y of pipeline gas to Northeastern
provinces (20 bcm/y) and Bohai Bay gas market (18 bcm/y). The Bohai
market is the target of LNG supply from North America and Australia.
• With regard to the delay (1-4 years) of POS 1 gas supply, the option of POS
1 extension to Korea from Weihai to Inchon via the Yellow Sea sub-sea
pipeline will help the protection of 18 bcm/y pipeline gas market. To
maximise the benefit of this subsea pipeline, the option of gas swap
between China and Korea based on upstream assets in Russia’s east
Siberia and Central Asian Republics, in particular Turkmenistan andUzbekistan should be explored seriously. (Considering the role of Korean
companies in constructing gas treatment plant construction in Central Asia,
it will not be difficult to secure the upstream equity (that can handle 5-10
bcm/y production capacity).

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Table 3. China’s Primary Energy Consumption by Source

20002005

2015

Coal

69.2

70.8

66.0

Oil

22.2

19.8

17.1

Gas

2.2

2.6

5.7

Hydro,
Nuclear &Renewable

6.4

6.8

11.2

Source : CNPC (2015)
China aims at increasing the gas share in 2020, 10.8% and in 2030,15.4%, according to SASAC (Dec 2015).

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Table 6. Outlook for China’s Gas Market
unit : bcm
2015

2020

2030

COCOCO

Conventi
onal

132.0

138.5

170.0

185.0

210.0

230.0

Unconventional

14.9

18.8

31.6

59.7

57.3

116.0

- SG- CBM
- CTG

5.0
7.9
2.0

6.5
9.3
3.0

10.0
11.6
10.0

30.0
14.7
15.0

20.0
17.3
20.0

60.0
26.0
30.0

Imported
LNG

35.0

40.0

60.0

70.0

70.0

80.0

Imported
Pipe Gas

40.0

44.0

75.0

80.0

120.0

130.0

Total

224.9

241.3

336.6

394.7

457.3

556.0

Note : C means conservative projection, and O means optimistic projection.
SG means shale gas CTG means Coal to Gas.
Source : CNPC (2015)

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In 2015, CNPC had readjusted its gas demand projections by 2030
significantly as the business as usual volume is 100 bcm/y less thanthe 2012 projection figure. China’s share production performance willaffect the pipeline gas and LNG import fundamentally.
CNPC’s figures strongly indicates that pipeline gas import volume will
be definitely bigger than LNG import volume, even though China’s LNG
import terminals’ capacity (stage I + II) will be much bigger than Japan’sLNG import capacity of 85-90 mt/y when around 20 terminals arecompleted.
Beijing leadership may rethink of the Altai route import when the South
China Sea’s dispute issue (Spratly Islands) is intensified in the comingyears. As Beijing aims at maximising the pipeline oil and gas supply from
Russia and Central Asian Republics to reduce its vulnerability of sea-lane
supply, Russia could be a full but indirect beneficiary of the South China
Sea dispute.
In the coming few years, China’s gas import volume will be the biggest inAsia, and it is very necessary to promote gas consumers’ cooperation
among Korea, Japan and China proactively.

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China’s Four Natural Gas Import Gateways

NorthwestGateSouthwest
Gate
Source: CNPC 2015

NortheastGate

Sea LNGGateIEEJ：February 2016 © IEEJ2016

Reference :• Keun-Wook Paik, Sino-Russian Oil and Gas
Cooperation : The Reality and Implications(Oxford : Oxford University Press, 2012).
• “Sino-Russian Gas and Oil Cooperation Up : Entering
into a new era of strategic partnership?”, OIES Paper
WPM 59, April 2015.
http://www.oxfordenergy.org/wpcms/wpcontent/uploads/2015/04/WPM-59.pdf• http://www.adjacentoilandgas.co.uk/construction-

maintenance/power-of-siberia-pipeline-as-pivot/22199/

Contact :report@tky.ieej.or.jp