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Saudi Arabia vs. Russia: The fight to become China’s top oil supplier
Crashing oil prices brought Russia and Saudi Arabia closer together than ever. But now, a race to satisfy China’s huge energy needs threatens to drive them apart.
Russia and Saudi Arabia have closely coordinated their efforts to eliminate a massive oil supply glut that sent crude prices crashing last year to unthinkably-low prices.
They agreed, along with other major producers, to slash their collective crude production as part of an effort to support prices. Last week, they extended the deal by an additional nine months.
The most recent sign of cooperation between the world’s top two oil producers came this week, when Russian President Vladimir Putin met personally with Deputy Crown Prince Mohammed bin Salman to reinforce the agreement.
Behind the scenes, though, there is another reality: Saudi and Russia are engaged in an intense battle over who will be the top supplier to China, a major energy importer with an insatiable appetite for crude.
Robin Mills, the chief executive of Qamar Energy, compared the emerging rivalry to the “Great Game” — a 19th Century geopolitical chess match in which Britain and Russia battled for supremacy in Central Asia.
“Now China is the player,” said Mills. “Every lead exporter, whether it’s Saudi Arabia, Iran or Russia, you have to be in that market.”
Russian dreams
Russia made its first major move in 2014. Putin, who had been denied access to Western markets because of sanctions over the conflict in Ukraine, looked east for an economic lifeline.
He found it in China. After years of negotiation, Moscow and Beijing signed a 30-year deal in 2014 to supply natural gas to the world’s largest emerging market. The contract is worth an estimated $400 billion.
It wasn’t widely publicized at the time, but energy strategists say that Putin offered a steep discount to Chinese President Xi Jinping to make the deal happen and secure Russian access to the Chinese market.
Putin was not the first to make an overture to Beijing, however.
Saudi vision
The late King Abdullah of Saudi Arabia launched his own courtship of Beijing with an overseas visit in 2006. The trip led to a joint venture between China National Petroleum Corporation (CNPC) and its Saudi counterpart, Saudi Aramco.
The deal included a giant refinery on the Red Sea capable of handling 400,000 barrels of crude a day, as well as the construction of a similar facility in China. The Kingdom also committed to locating its Asian headquarters in Beijing.
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Saudi energy minister Khalid Al Falih said the Kingdom is just getting started.
“We are hoping for many more refineries on Chinese soil,” he recently told CNNMoney. “It is very strategic and at the highest degree. We have a lot of room to grow and our Chinese partners know this.”
Asia strategy
It’s not just China that has caught the attention of Russia and Saudi Arabia.
Current Saudi ruler King Salman toured the broader region earlier this year, signing oil and gas deals worth $13 billion with partners in countries including Malaysia and Indonesia.
Demand is massive: Asia represented nearly a third of daily global demand at 31.4 million barrels last year, according to the consultancy FACTS Global Energy.
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India, which boasts 1.3 billion people and a booming economy, is emerging as another major draw in Asia. Mills said the country is now adding as much — if not more — oil volume than China.
Al Falih said the country is “very high” on his radar.
Russia is also making a play for the market, surprising industry watchers last October by paying $13 billion for Essar Oil, India’s second largest private oil company. The deal has not yet secured final approval.
Putin has shown his priorities in another way: He invited Indian Prime Minister Narendra Modi to this week’s St. Petersburg International Economic Forum, an marquee event held each year in the Russian leader’s hometown.
9 Comments on "Saudi Arabia vs. Russia: The fight to become China’s top oil supplier"
Cloggie on Sun, 4th Jun 2017 4:02 am
KSA is moving away from being the petrol station of Anglosphere. Not in terms of barrels delivered but in terms of the way it gets paid for its oil.
KSA was and still is America’s “cat flap” to continuously insert new dollars into the world’s financial system for every barrel of oil pumped up.
With the rising power of China this is likely going to change:
http://www.zerohedge.com/news/2017-06-01/chinas-next-step-destroy-dollar
Meanwhile the yuan could become acceptable at least for deliveries to China itself, because the Chinese economy meanwhile has a lot to offer to KSA. Like solar panels for KSAs ambitious renewable energy plans.
https://www.bloomberg.com/news/articles/2017-02-20/saudis-kick-off-50-billion-renewable-energy-plan-to-cut-oil-use
Regarding India… until now there have been basically four major geopolitical players: US, EU, Russia and China. That could very well change over the coming decade or two in that India will be added to this list as a serious player with impressive growth rates. With China and India both being overpopulated nations, they can’t afford to “fuel” this growth with fossil alone in order to prevent suffocation in the cities. That is a factor, independent of energy price or global climate change. Let Russian oil contribute to Indian growth, from which the renewable energy transition can be funded, that is Chinese solar and European wind.
Tommy on Sun, 4th Jun 2017 7:08 am
I’m so over f@@king trolls just go away . If all is good then why hang around here . Nuf said
makati1 on Sun, 4th Jun 2017 7:35 am
Cloggie, I don’t see India as a viable competitor to China. I see the disintegration of India ahead as it’s economy continues to contract and fragment. They have an idiot running the country now that believes he can do anything. (Sound familiar America?) We shall see.
rockman on Sun, 4th Jun 2017 8:00 am
“I don’t see India as a viable competitor to China.” India appears to be moving away from both Russian and Saudi oil imports:
India’s 2016 Iran oil imports hit record high
From The Economic Times:
http://economictimes.indiatimes.com/news/economy/foreign-trade/indias-2016-iran-oil-imports-hit-record-high/articleshow/56914858.cms
“India’s annual oil imports from Iran surged to a record high in 2016 as some refiners resumed purchases after the lifting of sanctions against Tehran, according to ship tracking data and a report compiled by Thomson Reuters Oil Research and Forecasts.”
Cloggie on Sun, 4th Jun 2017 8:55 am
Cloggie, I don’t see India as a viable competitor to China.
Me neither, but Russia is not a competitor either for China. My point was that in the long run a subcontinent of 1.5 billion with growth rates of 5% or higher can’t be ignored geopolitically.
Both China and India will almost force Europe (including soon Russia) to remain integrated.
I see the disintegration of India ahead as it’s economy continues to contract and fragment.
Um… contract?
http://statisticstimes.com/economy/image/world/india-china-gdp-growth.jpg
New glasses perhaps?
makati1 on Sun, 4th Jun 2017 9:10 am
Cloggie, be careful of the source of your stats. Anything coming out of a Western source is likely to be faux or twisted.
Davy on Sun, 4th Jun 2017 9:41 am
WTF, makati the pot calling the kettle black. No one on this board is more bias as you. No one cherry picks facts like you. No one brags like you and in the same breath attacks like you. It is the combination of bragging and attacking that is so disgusting. Attacking in anger is one thing attacking because of self-righteous narcissism is another.
tk on Sun, 4th Jun 2017 12:46 pm
China will try to get all the oil it possibly CAN get…
as is India… as is Europe… as is the US… as is
any “country”… so there is no “fight to become
China’s top supplier” … what’s the fight when the
output of oil EXTRACTION is what it is? I hope
noone here on that board bought into that
“Saudi oil production cut”-BS…
there is no cut, “just” depletion…
right into the abyss…
rockman on Sun, 4th Jun 2017 10:27 pm
tk – “so there is no “fight to become
China’s top supplier” I try to avoid saying the obvious but since you brought it up: So true. I sell oil for a living. US companies sell oil for a living. Obviously none of give a sh*t who we sell to. We sell to the highest bidder. Which is why 190 million bbls were sold to foreign buyers in 2016 after tyhe export “ban” was lifted and sold 170 million bbls to foreign buyers in 2015 before the export “ban” was lifted.
Said before and saying it again: it ain’t personal…just business. LOL.
But if someone wants to be pissed off go after the refiners. LOL. Compare the 200 mm bbls of crude we producers export to the products they sell to foreign buyers the make from 1.5 BILLION bbls of oil per year. I doubt more then 10% of our consumers realize they are directly competing with foreign consumers.