Energy deals between China and Russia

China is currently the biggest net importer of petroleum and other liquid fuels. More than 50% of China’s annual consumption of oil is imported. The graph below also tells us that more than 60% of oil supplies will be imported in 2020. The consumption is closely related to the number of automobiles. China has more than 100 million automobiles today, with an annual increase of millions of cars. I China will rely more heavily on foreign supplies of oil in the future.

The graph also tells us that China will be more reliant on foreign supply of natural gas. In 2020, more than 50% of natural gas in China will be imported. Since the number is only 10% in 2010, there is a growth of 40% in reliance. Imports rise when the demand for natural gas increases. Rapid urbanization and environment concerns push China to consume more natural gas. People living in the countryside of China use coals frequently. After they move into cities, they switch to use natural gas, because it is cleaner and safer.

Sufficient and secure energy supplies are essential for the growth of industrial companies. If energy supplies are insufficient, the growth of industries such as auto industry will be limited. If there are too many cars but not enough oil supplies, the oil will skyrocket. Even though China today has the largest oil reserves in the world, those reserves can be run out quickly if energy demand overwhelms energy supply. Energy demand will continue to rise because it is estimated that 300 million Chinese people will migrate from countryside to cities in the next decade. So it is in the best interest of China to find long term partners of energy supplies.

The partnership with Russia can help China to solve the shortage of domestic energy supplies. Since the political unrest in Ukraine. Russia has been actively (or desperately) seeking for partners and allies. Therefore, it decided to sign several energy deals with China. Russia signed “a $270-billion, 30-year contract for Russian state oil firm OAO Rosneft to sell oil to China.” Also, Russia “is expected to include the construction of a pipeline to ship 38 billion cubic meters a year to China from fields in eastern Siberia.” If finished, this pipeline can provide China huge amount of natural gas, which can be more than one-fifth of China’s total natural-gas consumption.

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http://cn.wsj.com/gb/20140516/bch102834_ENversion.shtml

3 comments to Energy deals between China and Russia

  • reed

    Yeah, it seems like China is goinng to get torched on energy security. The government is aware though and pouring money into the energy sector. The solar panel subsidies are undoubtedly related to China trying to push forward on energy research to provide energy as the country continues to develop.

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