Pages

10 March 2023

The state of China–Russia cooperation over natural gas


Russia signed a 30-year agreement to supply natural gas to China just before launching the invasion of Ukraine in February 2022. This was the second such agreement between the countries, with the first occurring after Russia’s annexation of Crimea in 2014. China, however, appears reluctant to become dependent on Russian supplies and has been careful to structure the partnership to maintain the upper hand. This means that Russia’s efforts to divert gas exports eastward following its energy divorce with the European Union will achieve limited gains, leaving potentially 150 billion cubic metres of production capacity stranded for the foreseeable future.

On 4 February 2022, less than three weeks before launching an invasion of Ukraine, Russian President Vladimir Putin travelled to Beijing and signed a 30-year agreement to supply natural gas to China. The deal – denominated in euros rather than US dollars – requires Gazprom, the Russian energy company, to supply the China National Petroleum Corporation with an additional 10.0 billion cubic meters (bcm) of gas annually by 2026. Russia pledged to construct a new 620-kilometre pipeline as part of the agreement, which will increase onward supply by linking two existing Russian pipelines – Power of Siberia, connecting the Chayandinskoye gas field with northeast China, and another in the far east connecting two gas fields on Sakhalin Island with Vladivostok (see Figure 1).

From 2026, the deal will have increased the amount of gas Russia has committed to China annually by 26.3%. In 2021, Russia supplied 10.4 bcm of gas through Power of Siberia, although this was a relatively small share of the 201.7 bcm it exported globally by pipeline. By comparison, Europe (including Turkiye and the United Kingdom) absorbed 185.2 bcm (76.7%) of total Russian gas exports that year. In 2022, gas exports fell by an estimated 45% amid the global reconfiguration of energy flows triggered by the invasion of Ukraine. In September 2022, for example, Russia suspended exports to Germany via Nord Stream 1, which had transported 59.0 bcm in 2021. Underwater explosions several weeks later damaged the pipelines and prevented them from being reactivated. The China–Russia gas deal in February 2022 was an early step in what will probably be a continuing effort by Moscow to direct its gas supplies eastward. It will be able to increase exports to China in the future through the creation of new infrastructure, depending on China’s interest, but there is little prospect that China will be able to fully replace Europe as a gas customer. China appears reluctant to become dependent on Russian supplies and has been careful to structure the partnership so as to maintain the upper hand by exploiting Russia’s isolation and pursuing access to gas fields that would be exclusive. This suggests that the war launched against Ukraine in 2022 will have serious negative long-term effects on Russia’s gas industry.

No comments:

Post a Comment