The expert explained why the purchase of energy resources by China will not save the budget of the Russian Federation

Oil prices continue to fall sharply

China has become the largest importer of Russian energy resources: in January-February, our country came out on top in terms of gas and oil supplies to the Celestial Empire, displacing its main competitors – Saudi Arabia, Qatar and Turkmenistan from the pedestal. True, it is difficult to please the domestic economy with such records: the federal budget deficit has grown to a maximum, and the extractive industries, due to sanctions and falling hydrocarbon prices, are gradually losing the ability to replenish the federal treasury with the necessary finance.

According to representatives of Chinese customs, in January Russia ranked first in terms of total gas supplies to China: about 2 billion cubic meters of “blue fuel” were sent to the people’s republic through the Power of Siberia pipeline, and domestic producers sold another 770 million cubic meters in liquefied form. Exports to China of other major gas suppliers, Qatar and Turkmenistan, turned out to be more than 1.5 times less.

With “black gold” was even more lucky. In the first two months of the year, Beijing bought almost 15.7 million tons of Russian oil (about 1.95 million barrels per day), which is about 24% higher than the same period in 2022. Saudi Arabia, until recently considered the main exporter of liquid hydrocarbons to China, moved to the “silver” place. According to the forecasts of the American Bloomberg agency, the path chosen by the Celestial Empire to ease coronavirus restrictions will allow Chinese energy giants PetroChina and CNOOC to increase their daily oil imports by another half a million, and Russia can provide a significant part of it.

Meanwhile, according to the General Administration of Customs of the People’s Republic of China, local importers have been buying Russian oil at a big discount for a long time. Western sanctions and the “ceiling” of prices for hydrocarbons from our country allowed Chinese buyers to conclude contracts with West Siberian producers at discounts. In particular, batches of low-sulphur Russian ESPO brand, which arrived at refineries in Shandong province in February, were sold with a preference of $8 per barrel compared to the cost of Brent.

However, it is obviously too early for Moscow to celebrate hydrocarbon breakthroughs in the Chinese direction. The cost of oil on the world market continues to decline. The international grade Brent collapsed below $70 per barrel. Exchange players have not encountered such low prices since December 2021. Falling commodity prices world experts associated with a possible recession in the European economy and the upcoming increase in interest rates by the US Federal Reserve.

“The situation of the domestic energy sector can be aggravated by another sanctions blow, which can be inflicted by the G7 members and the EU countries,” believes investment strategist of Arikacapital Management Company Sergey Suverov. Estonia, Lithuania and Poland called on their colleagues in the European Union to reduce the export price limit for Russian oil, set at the end of last year, from $60 to $51.5 per barrel. The $8 discount at which our country allegedly recently sold raw materials to East China distilleries can only be considered the tip of the iceberg. In order to successfully sell the produced volumes, our companies, according to leaks from over-the-counter sources, had to give up $25 and even $35 per barrel, which put domestic oil and gas holdings on the verge of profitability. “If the global cost of a barrel falls to $50, then the “ceiling” for Russian hydrocarbons may drop to $25-30 per barrel, and then our budget will definitely not have to dream of any profits,” the expert warns.

There is another reason that will not allow Moscow to further increase gas supplies to China: the lack of gas transmission capacity. At the end of 2019, Gazprom built a main pipeline in the Asian direction, called the Power of Siberia. Its annual planned capacity of 38 billion cubic meters should be reached in 2025 (now – about 20-22 billion). “There is an intention to build several more parallel lines to deliver hydrocarbons not only to the Celestial Empire, but also to Mongolia,” says Sergey Pravosudov, director of the National Energy Institute. However, the implementation of the new project requires investments of $10-15 billion. In addition, it is first necessary to conclude long-term contracts with Beijing and Ulaanbaatar for long-term supplies of “blue fuel”. Similar agreements are to be signed with respect to oil, via the Eastern Siberia-Pacific Ocean pipeline.

The record increase in gas and oil deliveries to China has so far brought Russia only an emotional, rather than a financial, advantage over global competitors. According to the head of the International Energy Agency Fatih Birol, in January, Russia’s oil and gas revenues could be reduced by about $ 8 billion due to the price “ceiling”. Domestic statisticians indirectly confirmed this information, explaining that only in January, due to a fall in domestic oil and gas revenues by more than 28%, the federal budget deficit reached a record high of 1.76 trillion rubles for this month. By the end of February, the deficit of the national treasury rose to 2.6 trillion rubles.