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Business trends

China strikes oil and gas deals with Russia's Rosneft

Beijing seeks alternative energy source as US supply declines

An employee works at the Achinsk refinery owned by Rosneft in Krasnoyarsk Region   © Reuters

BEIJING/MOSCOW -- Russian state-owned company Rosneft announced Thursday that it has signed energy deals with a pair of Chinese energy counterparts, seizing an opportunity as Beijing moves to diversify suppliers amid the trade war with the U.S.

China National Chemical, known as ChemChina, agreed to purchase 2.4 million tons a year of crude oil from Rosneft. That amount is equivalent to 6% of Rosneft's total exports to China in 2017. Crude oil from Eastern Siberia will be transported to a Russian Far East port by pipeline.

Rosneft will also form a joint venture with Beijing Gas Group to operate filling stations in Russia for natural gas-fueled vehicles. Beijing Gas, a unit of state-owned Beijing Enterprises Group, will take a stake of nearly half in the venture and provide expertise on setting up and running gas stations.

Russia, struggling with international sanctions imposed after its annexation of Crimea, is eager to find customers for its natural resources. The trade war between the world's two largest economies, which is set to reduce China's energy procurement from the U.S., presents an opening for Moscow.

The deals come days before Chinese President Xi Jinping is to meet with Russian counterpart Vladimir Putin in Argentina on the sidelines of the G-20 summit.

The latest agreement follows a 2017 agreement between Beijing Gas and Rosneft for the Chinese company to acquire partial rights to Siberian oil and gas fields from the Russian partner for $1.1 billion. Now Beijing Gas will help Rosneft in its effort to run a station business, apparently hoping to secure increased supplies of Russian gas down the road.

China relies heavily on energy imports, buying about 70% of the oil and around 40% of the natural gas it consumes from other countries. In the first half of this year, 7% of China's liquefied natural gas imports came from the U.S.

About half of the deals China signed with the U.S. during President Donald Trump's visit last year were for gas and other resource development projects. But now that Beijing has imposed additional tariffs on American energy products, supplies from the U.S. are expected to decline.

China is set to increase its purchase of LNG from Qatar and plans to meet its oil demand by increasing crude imports from Russia.

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