Through its only direct pipeline, Russia plans to nearly double its fuel exports to China, as it competes with Saudi Arabia to be the country’s leading supplier. Preliminary agreement has been given by China to receive expanded deliveries through the 924-kilometer (574-mile) line.
Earlier, an agreement had been reached between the two countries, allowing an increase to 30 million tons per year with a second branch line after state-owned Rosneft signed a pact to supply China National Petroleum Corp. (CNPC) with an additional 360 million tons of crude over 25 years.
As prices continue to sag despite cutbacks by the Organization of Petroleum Exporting Countries (OPEC) and cooperating non-OPEC producers, including Russia, under an agreement known as OPEC-Plus, the push to supply the world’s biggest importer with more fuel comes at such a time.
Russia has surged to the top of its list of suppliers, although China’s fuel demand growth has been relatively weak.China’s real need for more fuel is hard to assess, while at the same time, China’s imports from Russia could rise further.
With import dependence now routinely nearing 70 percent, China’s reliance on foreign fuel has grown steadily since last year.
The government has allowed independent refiners, known as teapots, to bring crude into the country under a quota system since last year, which has partially resulted in an increase in China’s buying.A second batch of quotas that will allow refiners to import an average of 1.83 million bpd this year, was approved recently by the Ministry of Commerce.
By way of competition with the independents, China’s state-owned fuel giants were forced to lower their retail fuel prices, ‘effectively launching a price war with teapots.’
With Russia’s planned increase in supplies adding to the surplus, the result is likely to be more downward pressure on prices and China’s domestic production.
Source: EUR Asia Review