Energy Demand in China by 2030
According to the International Energy Agency (IEA), China's energy demand will increase by 9% compared to 2022, reaching 116.4 EJ (32.3 trillion kWh) by 2030. Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) forecasts that China's oil demand will rise by 13% between 2023 and 2030 to 17.8 million barrels per day and reach 18.8 million barrels per day by 2045 (+19% from 2023 levels). Alongside India, China will lead the growth in global oil consumption.

Currently, China accounts for 16% of global liquid hydrocarbon consumption, while Russia contributes 11% of global production, stated Igor Sechin, Secretary of the Commission on Energy Development Strategy under the President of the Russian Federation and CEO of Rosneft, during the 6th Russian-Chinese Energy Business Forum (RCEBF) on July 23. In 2023, Russia exported 107 million tons of oil to China (+24%), increasing its share of China's oil imports to 19% (+2 percentage points compared to 2022).

Broader Energy Cooperation
Russia's energy cooperation with China extends beyond oil supplies. Since 2019, Russia has exported $311 billion worth of energy products to China, according to China’s General Administration of Customs. Supply volumes grew 2.2 times from $43 billion in 2019 to $95 billion in 2023. Moscow and Beijing are also actively transitioning to settlements in national currencies, with the share of transactions in rubles and yuan exceeding 90% last year.

Russian gas exports to China, including liquefied natural gas (LNG), reached a historic high of 34 billion cubic meters in 2023. In February 2024, Gazprom surpassed Turkmenistan, the long-time leader in pipeline gas supplies to China. Deliveries via the Power of Siberia pipeline increased from 15.5 billion cubic meters in 2022 to 22.7 billion cubic meters in 2023, with a projected capacity of 38 billion cubic meters per year by 2025.

Russian coal exports to China exceeded 100 million tons in 2023, compared to 67 million tons in 2022 and 60 million tons in 2021.

Nuclear Energy Collaboration
Russian companies are also involved in China's nuclear energy development. Rosatom is constructing the third and fourth power units of the Xudapu Nuclear Power Plant, each with a capacity of 1.2 GW, using Generation III+ VVER-1200 reactors. The plant is located on the shores of the Liaodong Bay in the Yellow Sea, in Northeast China.

Under the contract, the Russian side will design the nuclear island, supply key equipment, and provide installation and commissioning services. The units are scheduled for commercial operation in 2027–2028.

Additionally, work is ongoing at the Tianwan Nuclear Power Plant, which will consist of eight power units. Russia has already completed and commissioned four units with a total capacity of 4.4 GW. The plant is located in Jiangsu province on the Yellow Sea coast.

The cost of Tianwan’s first phase, comprising two VVER-1000 units, was $3 billion. Russia's contribution to the second phase was estimated at approximately $1.8 billion, reflecting a 20 percentage point increase in local production localization to 70%.

Rosatom is currently building two VVER-1200 units (units 7–8) at the Tianwan site. Construction of the seventh unit began in May 2021, and the eighth unit commenced on February 28, 2022, with the pouring of the first concrete.

Chinese Interests in Russia
Chinese corporations primarily participate in overseas projects focused on exporting energy resources to China, notes Maxim Malkov, head of the oil and gas sector practice at Kept. Chinese partners' equity involvement ensures stable supplies of fuel and energy resources to China. For instance, in Novatek's Yamal LNG project, Chinese CNPC and the Silk Road Fund hold 20% and 9.9% stakes, respectively, while in Arctic LNG-2, CNPC and CNOOC each hold 10%.

The Yamal LNG plant, with a total capacity of 17.5 million tons per year, was launched in phases between 2017 and 2021. It is the largest energy project in Russia involving Chinese companies over the past decade, according to Sergey Tereshkin, CEO of Open Oil Market. The Export-Import Bank of China and the China Development Bank financed the project.

Without the participation of Chinese banks and investors, the project would have been unlikely to proceed, as Russian companies faced challenges accessing international markets after 2014, Tereshkin argues. The Arctic LNG project involving Chinese partners is expected to be fully operational in the latter half of the 2020s.

Chinese investors are also involved in Rosneft's oil and gas projects in Siberia through the Verkhnechonskneftegaz joint venture and in the Volga region through Udmurtneft. Beijing Gas is an investor in the first joint venture, while Sinopec is involved in the second.

In the coal sector, Chinese investors (CHN Energy) are developing the Zashulanskoye deposit in the Trans-Baikal Territory with guaranteed product supplies to China.

Prospects for New Projects
Russia and China are discussing new energy projects, the largest being the Power of Siberia 2 pipeline, with a capacity of up to 50 billion cubic meters per year. Deputy Prime Minister Alexander Novak mentioned the potential construction of an export oil pipeline to China parallel to the Power of Siberia 2, with a capacity of approximately 30 million tons per year.

Chinese partners approach price negotiations for energy supplies with caution, Malkov notes. As a result, talks for new projects and contracts may be "lengthy and complex." He cites negotiations for the Power of Siberia 2 project as an example, with Chinese partners aiming to secure maximum reliable resources at minimal risk and cost.

Russia's key advantage for China lies in reliable and secure supplies, Malkov adds. China is likely to balance its energy imports, seeking maximum benefits. Nevertheless, oil, gas, and coal supplies from Russia to China are expected to grow due to strong mutual interest.

In nuclear energy, Russia and China are competitors, Malkov notes. However, Russian technology is "more than a generation ahead" of Chinese technology, he adds.

A strategically important area of cooperation could involve direct electricity supplies from Russia to China. Currently, electricity is delivered via the high-voltage Amurskaya–Heihe line, which helps balance Northeast China's power grid. In 2023, exports totaled approximately 3.1 billion kWh. Increasing exports will require significant investments in additional generating capacity, the analyst warns.

Potential Areas for Growth
Tereshkin sees the supply of raw materials for petrochemical production as the most promising area of energy cooperation with China, as petrochemicals are a key driver of China's hydrocarbon demand. Between 2019 and 2023, China's liquid hydrocarbon demand grew by 2.26 million barrels per day, of which 930,000 barrels per day (over 40%) were for petrochemical feedstocks like naphtha, ethane, and liquefied petroleum gases (LPG). Significant potential exists in supplying ethane and LPG from Gazprom's Amur Gas Processing Plant.

Energy expert Kirill Rodionov, however, does not expect a sharp increase in energy exports to China in the near future, especially after the Power of Siberia pipeline reaches full capacity. China is investing heavily in coal production (from $78 billion in 2019 to $100 billion in 2023 in 2023 prices) and renewable energy, which is likely to slow the growth of oil and gas demand.

According to the International Renewable Energy Agency (IRENA), China accounted for 63% of global solar panel capacity additions (216.9 GW out of 345.5 GW) and 65% of global wind power capacity additions (75.9 GW out of 116 GW) in 2023. Thus, Rodionov suggests that future cooperation might focus on supplying equipment for renewable energy generation.


Translated usingChatGPT

Sourse:   https://www.vedomosti.ru/analytics/trends/articles/2024/07/28/1052511-krepkie-energosvyazi?from=copy.