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The Russo-Chinese Oil and Gas Agreements Initiate a New Published Oct 2009Era in Geopolitics of Oil
©
GlobalData. This brief is a licensed product and is not to be photocopied
Pae 1
The Russo-Chinese Oil and GasAgreements Initiate a New Era inGeopolitics of Oil
Publication Date:
October 
 
2009
 
Viewpoint
The Russo-Chinese Oil and Gas Agreements Initiate a New Published Oct 2009Era in Geopolitics of Oil
©
GlobalData. This brief is a licensed product and is not to be photocopied
Page 2
The Russo-Chinese Oil and Gas Agreements Initiate a New Era inGeopolitics of Oil
In October 2009, Russia and China signed multiple oil and gas agreements to strengthen their collaboration in the energy sector. In 2009, they signed oil agreements worth $100 billion. Russiaagreed to supply oil to China for 20 years in lieu of a $25 billion loan to OAO Roseneft, a state run oilcompany and OAO Transneft, a state run pipeline company. Gazprom, the Russian oil and gas giant,aims to build two gas pipelines to deliver 80 billion cubic metres of gas annually to China. This will giveGazprom an opportunity to penetrate into new markets beyond its traditional European markets.China also plans to offer a $10 billion credit to the Shanghai Cooperation Organization (The groupcomprises of Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan, Russia and China). Further,Chinese sovereign wealth fund will invest $300 million in Nobel Holdings Investments (a Russian oilproducing company).With the global financial crisis affecting the Russian oil and gas sector, Chinese oil agreements haverevived optimism. To safeguard its economic growth, China has invested in major oil and gascompanies worldwide since December 2008, and Russia, with its huge oil and gas reserves, has beenan attractive investment destination for Chinese oil and gas companies. By becoming a major supplier to China, Russia plans to reduce its risk of overdependence on oil and gas revenues from Europe.
Russian National Oil and Gas Companies Gain Access to China, Asia’s Largest Energy Market 
China is the second largest oil consumer in the world and the third largest oil importer after the UnitedStates and Japan. The increasing energy consumption in China offers a growth opportunity for Russian oil and gas giants.For Russia, more than 60% of its export revenues come from the oil and gas sector. However,recession and lower oil and gas demand has influenced profits of Russian national oil and gascompanies as well as its GDP. Russian gas exports have shrunk by 56% in the first quarter of thisyear, compared to last year due to plunging gas demand in the European market.Gazprom, the third most-valuable company in the world a year ago has seen its global position fall to40, because of a decline in demand for oil and gas. The disputes over gas supply between Russia andits neighboring country, Ukraine, has further affected oil revenues of Gazprom, and this has further prompted West European nations to consider diversification from Russian gas supplies. Even after recession, Russia and Gazprom, face a looming threat of shrinking European gas demand further aggravated by frequent supply disruptions that have already dissatisfied European customers over thelast few years.Despite declining gas demand, Gazprom has a greater advantage, post recession, since it controlsone quarter of the world’s gas reserves. However, Russian oil and gas giants have very rarelypenetrated into emerging Asia Pacific markets.The marketed natural gas production in Asia Pacific has increased steeply in 2008 from 2007.Developing markets like China, Vietnam, Thailand, Singapore, Indonesia, Malaysia, and Bangladeshhave witnessed strong activity in natural gas usage in the industrial, petrochemical and power sectors.Similarly, natural gas usage in power sectors has also increased in the Middle East and Africa.Russian gas companies, affected by recession, have potential growth opportunities in buoyant Asian
 
Viewpoint
The Russo-Chinese Oil and Gas Agreements Initiate a New Published Oct 2009Era in Geopolitics of Oil
©
GlobalData. This brief is a licensed product and is not to be photocopied
Page 3markets, where natural gas consumption is expected to rise post recession. This would help Russiangas companies to reduce their dependence on European gas import revenues.
Figure 1: Global, Marketed Production of Natural Gas (Bcm), 2008
North America26.11%Latin America4.94%Europe9.85%FSU26.67%Africa6.60%Middle East12.40%Asia Pacific13.44%
 Source: CEDIGAZ/ GlobalData
Russian oil and gas majors need investments to increase their exploration activities and boost pipelinedevelopment projects. Russian pipelined oil and gas will face tough competition from Nabucco project,Uzbekistan’s oil partnership with South Korea, and China’s oil and gas deals with Kazakhstan andTurkmenistan.In July 2009, a €7.9 billion ($11.7 billion) Nabucco deal was signed to develop a pipeline carryingnatural gas from the Middle East and the Caspian region to central Europe. The pipeline deal aims atreducing the region's reliance on Russian gas. This deal between Austria, Bulgaria, Hungary, Romaniaand Turkey will impede the Russian gas pipeline projects to Europe.In May 2009, the oil deal between Uzbekistan and South Korea was signed providing the state-runKorea National Oil Corporation (KNOC) full exploration rights as the main contractor to the Namangan-Tergachi and Chust-Pap blocks. In addition, South Korean companies are expected to develop theSurgil gasfield near the Aral Sea.In June 2009, China signed a 30 year deal to buy 40 billion cubic meters of natural gas annually fromTurkmenistan. The natural gas will be transported through a 7,000 kilometer gas pipeline, whoseconstruction is expected to be completed by the year end. Moreover, China will provide a loan of $4billion to Turkmenistan’s state gas company, which will further strengthen the country’s oil and gas
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