Rani Jarkas: China is diversifying its oil supply provenances towards Russia

Warming ties between China and Russia are giving a big boost to Chinese imports of Russian oil. In the energy sphere, the two countries are an almost perfect match: the world's largest net energy exporter and its second largest net energy importer with a long land border.

Chinese customs data released recently show that China’s crude imports from Russia surged 28.17% in 2015, reaching 424.33 million tons. RIA Novosti reported that China becomes the largest crude importer for Russia in 2015.

An early sign of the increase came in May 2014, when Russian President Vladimir Putin and Chinese President Xi Jinping sealed a long-hobbled deal for Russia to supply China hundreds of billions of dollars in natural gas. Since then, Chinese banks have come through with loans for Russian companies ailing under U.S.-imposed sanctions and Russia has even signaled it might be willing to accept a Chinese stake in one of Russia’s biggest new oil fields.

And the rise in Chinese imports of Russian crude will continue. The flow of Russian crude to China will surpass 50 million tons annually by 2020, from more than 30 million tons in 2014, forecasts Wood Mackenzie’s Director Sushant Gupta.

There is a clear convergence of interests. Russia needs to diversify the markets for its oil and gas, while China has various reasons to increase energy imports from Russia. China’s domestic oil production has plateaued even as demand continues to rise. Bringing oil and gas via pipelines from Russia would strengthen China's energy security. It would cut the amount of oil and gas that must arrive along vulnerable transit routes. It would also give China more leverage to strike favorable deals in negotiations with other gas suppliers such as Australia and oil exporters in the Persian Gulf.

Rani Jarkas, Chairman of Cedrus Investments, who has decades of experience in global oil and gas investments, said, “China’s diversification toward Russia has been a trend for several years. Russia and CIS countries will play a much more crucial role in China’s energy demand strategy in the future, which will be beneficial to China.”