Last autumn, the world’s two largest oil producers united during an Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC meeting in Algiers, where they publicly declared their commitment to cut output and support prices.
Last month, they came together again and agreed to roll over their self-declared historic deal to take 1.8 million barrels off the market through the first quarter of 2018. That agreement was reinforced this week with a high-profile meeting between Russia’s President Vladimir Putin and Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman.
The bilateral show of force however, with 22 other countries in tow, masks what is an all-out battle over China and its persistent thirst for crude.
It was here in St. Petersburg in the early 18th century, that Tsar Peter laid the foundation stone to move the Russian capital to the city that eventually bore his name.
Back then, the Russian empire jockeyed for influence with Britain over Central Asia — known as the Great Game. In the 21st century, that match has moved to China and is spreading to other parts of Asia.
“The Great Game was Great Britain and Russia playing it out on a blank canvas; now China is the player,” said Robin Mills, chief executive of Qamar Energy. “Every lead exporter whether it’s Saudi Arabia, Iran or Russia, you have to be in that market.”
When Vladimir Putin’s back was against the wall due to Western sanctions over Ukraine and his appropriation of Crimea, the Russian president shifted his attention east to China in search of new partners.
The president’s trip took place on the eve of his version of Davos, the St. Petersburg International Economic Forum back in 2014, an effort to show his own people and the outside world that he could survive Western isolation and secure deals.
As a result, Putin and his Chinese counterpart Xi Jinping signed a 30-year, $400 billion agreement to supply natural gas to the world’s largest emerging market. What was not publicized back then, energy strategists say, was the steep discounts offered by Putin to sign on the dotted line with Xi.
Back in the 18th century, the Russian empire jockeyed for influence with Britain over Central Asia. Today, that match has moved to China and is spreading to other parts of Asia.
That agreement was a milestone and likely softened the blow from what was a three-year economic downturn that Russia is now slowly recovering from, but when it comes to conquering the Chinese energy market, Moscow was not a first mover.
The late King Abdullah of Saudi Arabia made his initial overseas visit to Beijing back in early 2006. That led to Beijing’s national energy company setting up a sizeable joint venture with its counterpart, Saudi Aramco.
The deal includes a giant refinery on the Red Sea handling 400,000 barrels of crude a day, a similar facility in China, and the Kingdom has made a long-term commitment by putting its Asian headquarters in Beijing with 1000 employees.
“We are hoping for many more refineries on Chinese soil. China is a big country and it’s consuming 11 million barrels and rising by the day,” said Khalid Al-Falih, Saudi Arabia’s minister of energy, industry and minerals, during a recent interview with CNNMoney.
“It is very strategic and at the highest degree. We have a lot of room to grow and our Chinese partners know this,” he added.
The strategy in China dovetails with Saudi Arabia’s plans to double its refining capacity to 10 million barrels a day by 2025, according to the Gulf Research Center in Riyadh.
And more is unfolding. Saudi Arabia’s King Salman earlier this year spent a month touring the region, from Southeast Asia to China, cementing oil and gas deals all along the way. On the first leg of the king’s visit to Malaysia and Indonesia, Saudi Arabia signed agreements worth $13 billion to expand downstream operations. The Asian transactions could have the added benefit of helping to bolster initial public offering (IPO) plans for Aramco next year.
Asia represents nearly a third of daily global demand at 31.4 million barrels last year, according to the consultancy FACTS Global Energy. It is a fact not overlooked by the major producers, with Russia and Saudi Arabia vying against each other for their slice of the rising star of energy demand, India.
Russia surprised industry watchers last October by paying $13 billion for Essar Oil, India’s second largest private oil company.
“India is a big market; it is now the fastest growing market and if you look at volume terms its adding as much in volume terms as China in terms of oil if not even more,” said Mills of Qamar Energy.
That point was underlined by Al-Falih of Saudi Arabia, who noted that India is “very high on our radar screen.”
No doubt it is a key reason why President Putin invited Indian Prime Minister Narendra Modi to this annual gathering in his hometown for the first time.
• John Defterios presents CNN Marketplace Russia, airing on CNN International this week.