The agreements signed between Russia's Medvedev and China's Li signal increasingly close ties
Originally appeared in Russia Beyond the Headlines
Five energy deals were signed during Russian Prime Minister Dmitry Medvedev’s visit to China on Dec. 14-17. Experts attribute China's continued interest in the Russian energy sector to Beijing’s urgent need to replace coal-fired power plants.
Beijing reiterated its interest in expanding energy cooperation with Moscow during Russian Prime Minster Dmitry Medvedev’s visit to China on Dec. 14-17.
Five energy agreements were signed during the annual heads of government meeting in Beijing on Dec. 17. A major highlight of Medvedev’s visit was the signing of a binding agreement, on the sale of a 9.9-percent share in the Yamal Liquefied Natural Gas (LNG) project, between independent Russian gas producer Novatek and China’s Silk Road Fund Co (SRF).
The $27 billion Yamal LNG project envisages the construction of a gas liquefaction plant near the South-Tambeyskoye field in northwest Siberia. The field has estimated reserves of 907 billion cubic meters.
The project is likely to be launched in 2017, with the plant expected to work at capacity by 2021.
With the latest deal in place, the shareholders in the project are Novatek (50.1 percent), France’s Total (20 percent), China’s CNPC (20 percent) and SRF (9.9 percent).
By bringing SFR into the project, Novatek is looking at securing $12 billion worth of loans from Chinese banks.
At the moment, the construction of the plant is being financed by the project’s shareholders. In addition, 150 billion rubles ($2.1 billion) have been allocated from Russia’s National Wealth Fund.
At his annual news conference on Dec. 17, Russian President Vladimir Putin once again stressed that the government would continue to support the project.
“Having closed the deal, we achieved the targeted shareholder structure, which is optimal and which will contribute to ensuring the smooth financing of the project and its further successful implementation,” Novatek Chief Executive Leonid Mikhelson said in a statement.
Citing a “request from the Chinese side,” Mikhelson did not disclose the deal value.
Russian business daily Kommersant estimated the deal to worth about $1.4 billion.
This is an “adequate market price,” Vitaly Kryukov, an analyst at Small Letters analytical agency told Kommersant. SFR is paying more than what others were willing to, because they are entering the project at a later stage, when the risks are lower, he said. “Now, it is a relatively safe project, which has received benefits and support from the state as well as cheap money from the National Wealth Fund,” Kryukov added.
“We have been waiting for this deal for a long time,” Alexander Pasechnik, head of research at the National Energy Security Fund, told RBTH. “Of course, it is a breakthrough in project financing, which shows that despite western sanctions and external challenges, we manage to find investors.”
Sino-Russian energy cooperation
Sinopec recently purchased a ten percent stake in Sibur, a major Russian petrochemical holding company that is also headed by Novatek Chief Executive Mikhelson. Sibur said it was looking at inviting Sinopec to be a strategic partner in the Amur Gas Chemical Complex.
Gazprom and Rosneft also signed cooperation agreements with Chinese companies during Medvedev’s China visit.
Gazprom Chief Executive Alexey Miller and CNPC Chairman Wang Yilin signed an agreement for the design and construction of a cross-border section of the Power of Siberia gas pipeline. Gazprom and CNPC also agreed to jointly work on gas power plant projects in eastern China.
“Despite falling oil and gas prices, Chinese companies are focused on long-term prospects,” Alexander Pasechnik, told RBTH. He added that pipeline gas and LNG are very important for China, which is facing the task of switching to more environmentally friendly power generation.
“China is literally suffocating because of coal-fired power generation,” Pasechnik added. “Ahead of the Olympics (Beijing will be host the 2022 Winter Olympics), it will have to shut down some production facilities to prevent smog. Therefore, China’s goal is to replace coal with gas power generation.”
Russia and China also signed agreements in nuclear energy, space technology, and on developing a cloud computing and data processing center.