Russia and China oil supplies through Kazakhstan

Russia and China signed an agreement on oil supplies through the territory of Kazakhstan for 10 years. This became known as a result of the visit of the Russian delegation headed by President Vladimir Putin to Beijing. Rosneft revealed the details of the new agreement.

Rosneft and the China National Petroleum Corporation (CNPC) have signed an agreement on the supply of oil to Chinese refineries through the territory of Kazakhstan. It will be valid for 10 years. The press service of Rosneft reported on the results of the visit of a Russian delegation led by President Vladimir Putin to Beijing on Friday.

It is specified that 100 million tons of Russian oil will be sent to refineries located in the northwestern part of China. Also during the visit, agreements were signed in the field of low-carbon development, digitalization and technological cooperation.

Rosneft’s total oil supplies to China since 2005 amounted to 442 million tons of oil. The company occupies a leading position among oil exporters to China. It is annually providing 7% of the country’s total demand for raw materials.

Russia and Mongolia moved on to the stage of designing the Soyuz Vostok gas pipeline to China. It is planned that its capacity will be up to 50 billion cubic meters of gas per year. The gas pipeline will pass through the territory of Mongolia. It will become a continuation of the Russian gas pipeline “Power of Siberia – 2”


China and Russia will strengthen integration cooperation in Eurasia

The leaders of Russia and China intend to intensify integration cooperation in Eurasia. According to a joint statement by Russian President Vladimir Putin and Chinese President Xi Jinping, published by the Kremlin press service on February 4. Moscow and Beijing have coordinated their positions on foreign policy issues.

Work on linking the development plans of the Eurasian Economic Union and the One Belt, One Road initiative is planned to be strengthened. It is noted that this is necessary to deepen practical cooperation between the EAEU and China, as well as to increase the level of interconnectedness between the Asia-Pacific and Eurasian regions.

“The parties confirm their focus on the parallel and coordinated formation of the Greater Eurasian Partnership and the construction of the Belt and Road in the interests of developing regional associations, bilateral and multilateral integration processes for the benefit of the peoples of the Eurasian continent,” the text says.

The statement also notes that Beijing  treats with understanding and supports” the proposals put forward by Moscow on the formation of long-term legally binding security guarantees in Europe. 

International Law rather than “certain rules developed in a closed circle”

Russia and China intend to jointly oppose attempts to replace international law with “certain rules developed in a “close circle” by individual countries or blocs of countries. “Putin and Jinping also stressed that countries are unanimous in understanding that “democracy is a universal human value, and not the privilege of individual states”. Therefore, attempts by “individual states to impose their” democratic standards on other countries … in fact, represent an example of trampling on democracy and retreat from its spirit and true values.

On the eve of the visit to Beijing for the opening of the Olympic Games, Putin published an article “Russia and China: A Strategic Partnership for the Future”. In that article he stated that Russian-Chinese relations have reached an unprecedented level of “comprehensive partnership and strategic interaction.” He emphasized that the foreign policy coordination of Russia and China is based on close, coinciding approaches to solving global and regional problems.

The first global “green” energy crisis is not the last!

Here we are sinking in the next energy crisis. This time it will be ”green”.  Gas prices are rising like cryptocurrencies, oil has exceeded levels unseen since 2018. How will it end? And most importantly – when?

Georgy Bovt
candidate of historical sciences, political scientist

What is happening these days and weeks in Europe? Off-scale gas prices (some ten days ago, some doubted whether they would surpass $ 1,000 per thousand cubic meters, and on October 6 they came close to 2,000). And ill-considered, hasty abandonment of traditional forms of energy in favor of green energy.

Coal prices, by the way, are also hitting records. In some countries (in the UK, for example) they are even thinking about the reopening of coal mines. China also made a significant contribution to the rise in coal prices by banning the export of coal to one of its largest producers. They themselves, they say, do not have enough.

Energy companies are a big winners. The value of shares of the Gazprom is breaking records. Together with the oil industry, it pulls the entire domestic (Russian) stock market with it. The question is how long this feast will last during the coronavirus plague. The 30-fold increase in the gas price compared to May 2020 can hardly be called normal. Even taking into account the fact that in this case we are talking about futures, and the growth of the real price is much less. It is still very significant, and cannot pass without leaving a trace for the rest of the economy.

I must say that the European Union itself planted this bomb when, quite recently, it began to demand that the market switch to short-term contracts, which are obviously more volatile. Most recently, this has been superimposed on such a purely technical exchange factor as massive margin calls at hedge funds. Those who decided to play “bears”, believing that prices simply have nowhere to rise higher, were cruelly mistaken. For tens of billions of dollars. 

Preconditions for this crysis were formed back in the northern summer

The preconditions for the market acceleration were formed back in the summer. It turned out to be unusually hot increasing, in particular, the demand for electricity air conditioners. This was superimposed on a sharp increase in demand from China. It was the first to emerge from the coronavirus economic torpor. Already in the summer, the main supplies of LNG were switched to Southeast Asia. Some in the EU considered it important to counter “gas dependence on Russia.” The reduction in supplies to Europe reached 20%. These volumes were not replenished by anyone, including the Americans, who previously praised their LNG as a means of liberation from the “energy diktat of Moscow.” Americans (and everyone else) could not resist big price increase in Asia.

It is also worth noting that Europe’s own gas production continued to decline. This happened due to the depletion of explored deposits and against the background of the refusal to develop new ones for the sake of the “green energy transition”. That resulting in reduction and then a complete cessation of such investments. 

Who they will blame?

Gazprom made its own small contribution. It has never booked additional volumes of supplies through Ukraine this year. Everything is clear according to the letter of the 2019 transit agreement with the Ukrainian Naftogaz. Strictly speaking, Gazprom was not obliged to do this. A contract is a contract: business, nothing personal. Also, the Russian gas monopoly short-term cut by 10% in August supplies through the Yamal-Europe pipeline and stopped selling gas through the electronic trading platform for a year in advance. It should be noted that gas supplies from Russia to Europe in January-June increased by 17 billion cubic meters compared to the same period last year. By the end of September the increase was already 18 billion cubic meters – while other suppliers did not increase exports. So Gazprom did not violate any obligations.

However, the inevitable search for the “extreme” in such a situation may force some in the West to again “blame” Moscow. . And also China, which buys up everything on the market with a vacuum cleaner. Not America, which, although it did not fulfill its promises, but they were not contracted. . And you certainly cannot blame those who do not want to abandon the provisions of the Third Energy Package (EU). According to that Gazprom will not be able to use more than half of the pipe’s (Nord Stream 2) capacity. Yet for the sake of life-giving competition!

The short-term consequences of the energy crisis are quite predictable. This is, firstly, the surge in inflation around the world, which is already pumped up by trillions of emissions of dollars, euros and yen, committed to support economies (and stock markets) in the midst of a pandemic.

Transition to “green energy” will be long and expensive

A number of countries have started talking about rationalizing energy supplies. China has actually started to do this. And his example is very revealing and clearly demonstrates that the transition to “green energy” will be difficult, long and expensive.

Power generation in China is more than 70% dependent on coal. It is the dirtiest source of energy in terms of greenhouse gas emissions. However it is one of the cheapest. The CCP has set a goal of achieving a carbon neutral economy by 2060 – ten years after the European Union. Well, once the party (CCP) has set a goal, it must be fulfilled. Investment in the coal industry is falling and so is production. So far, it has not been possible to fill the shortage with renewable energy.

The example of China and Europe suggests that all of this is just the beginning of a long journey towards green energy. The current crisis can rightfully be called the First World Crisis of the Green Transition. And such excesses will repeat and grow. The process will continue not for years, but for decades. Energy systems – at least temporarily, until the right balance is found – are becoming more vulnerable, not more resilient (including to the vagaries of the weather). And it will be very difficult to find and maintain this balance.

Where will electricity come from?

Only one conversion of road transport to electricity will lead to an increase in demand for it by 20-30%. Where will it come from? How difficult will this very “energy transition” be made by growing inflation (as a consequence of the general rise in energy prices) in combination with increased price volatility? Nobody knows yet. That is, with a high probability, the “energy transition” will be accompanied not by economic growth, but by an economic recession or stagnation against the background of shocks in certain sectors of the economy.

Spurred on by loud political slogans (and the corresponding actions of state regulators), investors are heavily investing in “renewable energy”. That is certainly good thing but they are stopping investing in traditional ones.  Wind and solar electricity must be stored somewhere, it is not coal, which can be taken out of the ground as needed. This means that huge storage capacities are needed. 

In business, this is called unpredictability. And it costs money. The technological solution to this problem takes time – and also money. Until recently, a model worked in Europe. Gas generation served as insurance for renewable energy. However, insurance does not work properly in the face of such a sharp rise in prices.

Of course, the scale of the catastrophe that happened should not be exaggerated. And all the more, you shouldn’t bury the “green energy”. At stake is survival on planet Earth and preservation of its climate in a form acceptable to the human race. As the current crisis is overcome, new long-term solutions will be found. 

China determined to build iron ore hub in Africa

World’s largest untapped iron ore reserve could be online by 2025, expert says

KEN MORIYASU, Nikkei Asia chief desk editor

There was a time when Japan, like China today, was the rising power in the East. That kept military planners in the West awake at night.

“It is very certain that no other nation at the present time is spending so large a part of its revenue on naval preparations,” military author Hector Bywater wrote in the 1921 book “Sea-Power in the Pacific — A Study of the American-Japanese Naval Problem.”

But Japan had a critical weakness: a lack of steel.

“Since the close of the Great War, shipbuilding in Japan has been seriously hampered by the difficulty of obtaining steel,” Bywater observed in his book. He accurately predicted a naval conflict between Imperial Japan and the U.S. two decades later.

Japan had imported large quantities of American steel under a special agreement between the two governments prior to 1917. Then the U.S. imposed a steel embargo that stemmed the flow to the Asian country.

“So serious has the shortage become of late that the output of tonnage in Japan during 1920 was 25% short of the forecast of 800,000 tons which had been made in January of that year,” Bywater wrote. “This scarcity of steel reacted on the naval program, delaying the launch and completion of ships.”

The armored cruiser Izumo, flagship of the Third Fleet of the Imperial Japanese Navy, is seen in Shanghai in 1937. Japan struggled to procure steel after the U.S. enacted an embargo in 1917.   © Getty Images

China learning from history

Chinese state planners looking to learn from history would quickly notice that the glaring vulnerability for Beijing today is its dependence on iron ore from Australia. While Beijing has tried to squeeze and punish Canberra for proposing an international investigation into the roots of COVID-19, it has been unable to wrestle itself away from Australian iron ore, which accounts for over 60% of China’s imports.

Australia deepens its connection to the Quad grouping with the U.S., Japan and India, forming a de facto anti-China tag team in the Indo-Pacific. Beijing has found it increasingly uncomfortable to depend so much on Canberra for iron ore. Also the basic material behind its own military buildup.

But that dependence may very well change by 2025, says Peter O’Connor, senior analyst of metals and mining at Australian investment firm Shaw and Partners.

“They are very serious” about diversifying supply and flattening the cost curve of iron ore.

The top focus for China’s diversification push is Guinea. An impoverished but mineral rich country in West Africa. A 110 km range of hills called Simandou is said to hold the world’s largest reserve of untapped high-quality iron ore.

Commodity watchers have known of Guinea’s potential for many years. However, the lack of infrastructure has hamstrung such development efforts. A roughly 650 km railroad would need to be built from scratch. And also a modern port from which the iron ore would be shipped.

Cost calculations have always discouraged potential entrants, such as Rio Tinto. But Beijing has more incentive to carry out the project than mere return on investment calculations. Because China needs to avoid the fate of Japan in the early 20th century.

Infrastructure building – not a problem for China

“Infrastructure is a function of time, money, the willingness to invest and, more importantly, the capability.”

China is building railroads around the globe through its Belt and Road Initiative and has no shortage of experience.

But what about the funding?

China currently buys 1 billion to 1.1 billion tons of iron ore yearly from third parties, O’Connor said.

“For every $1 the Chinese can lower the long-term iron ore price … that’s $1 per ton times a billion. It is a billion dollars of saving per year. It’s not just about diversity, it’s about lowering the price. It is not about the return on equity or return on capital of the actual investment. It is more about the benefit of the longer-term structure of the price.”

The long-term trajectory envisions the price of iron ore dropping to around $60 per ton from around $160 currently.

The project to develop Simandou has been split into four blocks. China holds either a direct or indirect stake in every one of them. The area holds an estimated 2.4 billion tons of ore graded at over 65.5%.

“Extraction of Simandou’s iron ore reserves would transform the global market and catapult Guinea into an iron ore export powerhouse alongside Australia and Brazil,” Lauren Johnston, a research associate at the SOAS China Institute of the University of London, told Nikkei.

“Group of 77 plus China”

If China unlocks Simandou’s reserves and drives a drop in international iron ore prices, “it could see selective commodity markets increasingly driven by intra-developing country dynamics,” Johnston said.

China would find such waters easier to navigate than having to do business with Quad member Australia.

Guinea is this year’s chair of the “Group of 77 plus China” at the United Nations. It is a grouping of 134 developing countries that form a large voting bloc China can depend on. Guinea has actively made statements on behalf of the group since assuming the chairmanship in January.

Johnston predicted that China would be pleased if progress on Simandou were achieved ahead of the Forum on China-Africa Cooperation. It is to be held in neighboring Senegal this year. It is the first time the Beijing-led gathering — held every three years — will be hosted by a West African country.

China is “preparing the pathway” to develop Simandou, with an expeditious 2025 timetable. That would seem stretched if you’re talking about a Western producer in Australia or Brazil. However, it is entirely plausible that China could be producing in that time frame.”


This article was originally published by NIKKEI ASIA