Russia and China ever closer
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The real stars of the Forum were Putin and Xi Jinping with the signing of ten agreements. But this year's SPIEF gave the audience much food for thought: from the role of gas in the future of the global energy mix to the inevitable influence of US choices in the commercial and energy fields

The well-known  annual Economic Forum in St. Petersburg has just ended. The forum coincided this year with a state visit by Chinese President Xi Jinping, who also attended the forum itself, speaking together with Russian President Vladimir Putin, Bulgarian President Rumen Radev, Armenian Prime Minister Nikol Pashinyan, Slovakian Prime Minister Peter Pellegrini, as well as UN Secretary General Antonio Guterres. The sanctions against Russia were not the main topic this time, but there was talk of trade wars, in particular that between China and the United States.

 

Different points of view

When Putin was asked whose side Moscow is on in the war for global economic leadership, the Russian president responded with a Chinese proverb: "When the tigers fight in the valley, an intelligent monkey sits and watches to see how it ends." However, the Russian president then added: “Where is our place? In the struggle for fair and democratic principles in the development of international economic relations.” According to the president, the attack on Huawei  was just a way to exclude the company from the global market and perhaps for this very reason he approved the agreement between Huawei and Russian company MTS for the development of 5G. “I understand the trade war between the United States and China, I understand this war between the United States and Russia, but I cannot understand the trade war between the United States and Europe. When this clash began last May, some European leaders were so disappointed they said Europe should take its security into its own hands”, said Bulgarian President Radev. Putin then recalled that it was Bulgaria that killed the South Stream project, and that now in Europe there is also pressure to slow down Nord Stream 2, a project which will however be completed, as was shown in St. Petersburg. Nord Stream 2, despite American pressure on Europe and Germany, in particular, is a project that is worthwhile, and therefore will be completed.

 

Energy revolutions

TheEnergy panel, moderated by Nobuo Tanaka, the former executive director of the International Energy Agency, was attended by several ministers and ambassadors from Russia, Qatar, Portugal, India, Mozambique, Venezuela, Angola, Iraq, and the heads of major companies including Rosneft and BP. Tanaka spoke of the energy outlook being characterized by 4 revolutions: shale gas and shale oil; photovoltaic and renewable; the green revolution in China, where in addition to renewables, gas is replacing coal, and electrification of cities, including the subject of electric cars.

Igor Sechin, the CEO of Rosneft, then spoke about the outlook until 2040. Over the past 25 years, the global economy has grown at an average rate of 3.5% per year and is expected to continue to grow with relatively high growth rates, a key driver of increasing energy consumption. “Given this, we believe the demand for energy resources by 2040 will grow by 1.5-2% a year,” Sechin noted.
In the meantime,  environmental problems will lead to a reduction of coal in the world energy mix from the current 27% to 21% in 2040. However, coal will remain an important resource for countries like China and India, where it will continue to account for around 40-50% of the resources used. Thanks to the current regime of regulatory and fiscal incentives, alternative energy (mainly solar and wind energy) will nonetheless grow at the fastest rate of all, over 2% per year. Despite this, the contribution of alternative energy to the global energy mix will remain relatively low, increasing from the current 12% to 16% by 2040.

 

Focus on gas

As a more environmentally friendly fossil fuel, gas will meanwhile replace not only coal but also nuclear energy, as many consider this energy to be potentially dangerous. “Natural gas, unlike alternative energy, can provide stable production. Furthermore, it is the fuel of the future for heavy vehicles and marine vessels. In fact we are expecting a five-fold increase in the demand for gas in the transport sector by 2040. Therefore, the demand for gas will grow at a faster rate (around 2% per year), which will lead to an increase in its share of the energy mix from 22% to 25% by 2040,” continued Sechin. Oil demand should also increase, specifically by around 1%, although this rate will lead to a reduction in its share of the energy mix from the current 32% to 28% by 2040.

Sechin pointed out that, on the very day that President Trump proclaimed the Golden Age of American energy, the US Senate introduced the law against the Nord Stream 2 pipeline. “An indisputable fact is that the United States is using energy as a political weapon. The introduction of sanctions or just the threat of their application has a destructive effect on the global energy market ecosystem. For all other market participants, the American Golden Age could prove to be the century of energy colonialism. Should the world's energy consumers become hostages to the continuing US election campaign?”

Meanwhile, returning to gas, if this resource were to grow, according to forecasts, by around 2% per year, LNG (liquefied natural gas) should grow even more. Qatar, which has built its economy on the sale of LNG and maintains 25% of world exports, is aiming to achieve further progress. And a giant like India is in the meantime keen to reduce coal consumption and increase the share of renewables and gas.

 

Next step, the OPEC+ meeting

During another session of the forum entitled “Global energy: challenges and opportunities”, Russian energy minister Alexander Novak talked about the factors that determine oil prices. According to Novak, the fundamental economic factors that dictate the balance of supply and demand take second place to geopolitical factors and the pressures exerted by some countries, with particular reference to trade wars and sanctions. For example, after a number of sanctions were announced, the price of oil recently fell by $10 a barrel. It is therefore difficult to predict prices in a market stressed by so many factors. But the OPEC+ agreement (between OPEC and non-OPEC countries, led by Saudi Arabia and Russia) has worked well, and has allowed the countries to emerge from the crisis of 2014-2015. The Russian minister is therefore convinced that at the next OPEC+ meeting in Vienna, which, as stated by Novak himself, is likely to be postponed to the beginning of July, after the G20, the parties will be able to find a new agreement.

Khalid A. Al-Falih, the Saudi Minister of Energy, Industry and Mineral Resources is also convinced of this: “In three weeks, when we meet, we will find an agreement. We might have to review the details later, an agreement is certainly not set in stone.” The words of some of the heads of companies in the sector, including BP, Royal Dutch Shell and Total, who stated that current prices are comfortable and allow investments to be made, also point to a positive outlook. However, none of the businessmen gave a clear answer to the direct question asked by the moderator: “If you had the option of 75 dollars a barrel for December 2019, would you buy or sell?”, explaining that the answer could influence the performance of their companies and the market.

 

A very productive alliance

The St. Petersburg Forum also included the Russian-Chinese Energy Forum, attended by the leaders of the two countries. “Energy is one of the most dynamic key areas of Russian-Chinese interaction. My colleague and friend Xi Jinping and I consider energy cooperation issues to be a priority and support joint initiatives and projects,” said Putin. “The energy industry is one of the most important, productive and broadly inclusive elements of this bilateral cooperation. Last year sales of energy resources between Russia and China exceeded 40 billion dollars, contributing to record trade of a hundred billion dollars,” said Xi Jinping. And, continuing on this positive path, ten energy agreements have been signed between the two countries.

In a period of market uncertainty, it can therefore be assumed that Russian-Chinese cooperation is increasing, and that it is indeed experiencing a new spring. And so on the one hand, in Europe, the “molecules of freedom”, a term taken from a note of the Department of Energy, which speaks of “molecules of U.S. freedom to be exported to the world,” referring to LNG, are still waging their battle (although American LNG is more expensive than Russian gas by 20-30%, as the Russians pointed out at the Forum). In China, on the other hand, this battle has already been lost, with the introduction of 25% duties.

Returning home after the forum, in the airports and railway stations of St. Petersburg, you could have seen the billboards written in three languages: Russian, English and Chinese.