Earlier this month, Supply Chain Matters noted that China had assumed the role of the world’s largest importer of oil.  That crown had been held by the U.S. since the 1970’s.

China is now undertaking strategic steps to insure a longer term supply of energy to both fuel its growing consumer based economy as well as its role as a globally focused manufacturer. On his first foreign visit as China’s new President, Xi Jinping had Moscow on his list of first places to visit.

During this visit, it was announced that after a decade of talks, Russia and China have signed a long-term deal that according to The Wall Street Journal, could see China surpass Germany as the largest importer of Russian sourced natural gas.

Under this new agreement, Russia will begin shipping to China roughly 38 billion cubic meters of gas per year by 2018. Supplies could eventually reach 60 billion cubic meters, according to this same news report. As a contrast, Germany imported 33 billion cubic meters in 2012.  The WSJ further indicates that China could pay in advance for this gas.  How’s that for big pockets.

In addition, a 25 year deal was inked with Rosneft, Russia’s state oil firm to double the supply of oil to China to 31 million metric tons a year. Rosneft is reported to be receiving a $2 billion loan from China’s state development bank to help fund development.  Reports note the significance of this announcement as the first time that Russia has agreed to a substantial stake for China in its strategic oil sector.

Russia has supplied Europe’s needs for energy for many years.  This new deal is perhaps an indicator that Russia has turned to China and the rest of Asia as a new customer base for its vast reserves of energy. China can also provide needed funding to tap oil reserves located across the Artic shelf, which is rather expensive to find and extract.

News reports quote Russian President Vladimir Putin as indicating that this latest Chinese visit would have “long-term, historic results.” That states the obvious.  The implications of this deal to European countries could be rather significant in the coming years.  Meanwhile, China continues to ink deals to assure long-term supplies of energy.

As cited in the book, The Quest by Daniel Yergin, global supply chain strategy is often dependent on global based geo politics and energy supply strategies. Author Yergin may well be citing these latest supply agreements involving Russia and China as new tipping points for global trade in the years to come.

Bob Ferrari