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Russia and China taking cooperation to a new level

With the inauguration of the Power of Siberia pipeline, energy cooperation between Russia and China is entering a new era.

by Lello Stelletti
03 December 2019
4 min read
byLello Stelletti
03 December 2019
4 min read

The world's largest exporter of natural gas and one of the world's largest consumers of fuel: Russia and China have inaugurated the Power of Siberia pipeline, a project that takes bilateral energy cooperation to a new level. The conduit, the result of a 30-year agreement signed in 2014 between the Russian giant Gazprom and the Chinese company CNPC, was inaugurated on 2 December by videoconference between the two countries’ presidents, Vladimir Putin and Xi Jinping. This is the largest contract ever signed by Gazprom, amounting to USD 400 billion, and provides for a maximum annual supply of 38 billion cubic meters of gas when the infrastructure reaches its maximum capacity. Power of Siberia is also an important turning point for the policies of the two countries, which will now be able to deal with their respective energy strategies differently.

Russia now has a firm view of the so-called “eastern route”, while definitely not neglecting the European customers who remain the main market. In Moscow, however, awareness is growing of a major new outlet for Russian gas production. “This year marks the 70th year of diplomatic relations between Russia and China. This year we are also turning on the supply of Russian gas to China,” Putin said during the inauguration ceremony. “This step brings us closer to achieving the task of bringing bilateral trade turnover to USD 200 billion in 2024, which we have decided on together with Chinese President Xi Jinping,” Putin added. For China, on the other hand, this is an opportunity: its maximum share of supplies of 38 billion cubic meters of natural gas per year is equal to 15.6 percent of Chinese consumption in 2018, according to data from the Beijing Commission for National Development and Reforms. This confirms that China still has ample room to increase natural gas consumption, as clean energy accounts for only about 8 percent of its primary energy consumption, while in many developed countries, it stands at over 20%.

Features of the pipeline

The pipeline is 3,000 kilometers long, through which supply from the Russian Far East to the Chinese border began today. From now on, the conduit will be connected to the Chinese national grid, to supply fuel to the east coast and to help meet the nation's vast and growing energy needs. Gazprom plans to start supplies at 10 million cubic meters per day and aims to reach its maximum capacity by 2025. Gazprom's minimum exports to China through the pipeline will be 5 billion cubic meters in 2020, 10 billion cubic meters in 2021 and 15 billion cubic meters in 2022, according to data provided by the Russian giant on November 29. Gazprom has not disclosed the price of the gas, but Putin has said it will be closely linked to oil prices, following a formula similar to the one that determines prices for European consumers. Compared to customers in the Old World, however, Gazprom needs not fear competition from the United States, which aims to expand its liquefied natural gas (LNG) exports to Europe. However, fierce competitors remain, such as Qatar and Australia, which will continue to send their LNG supplies along the busiest maritime trade routes. With Power of Siberia, however, Russia has the “infrastructure advantage” that does not require it to take into account climate-related issues, nor the timescales required for shipments by sea. Moreover, the demand for LNG can also be met by the Russian company Novatek, which is developing liquefied gas treatment plants in Siberia's Jamal peninsula.

A demanding consumer

Gas consumption in China, on the other hand, has grown considerably in recent years since the authorities began to lobby private citizens and businesses to start gradually replacing coal, with the aim of tackling air pollution. During the inauguration, Xi Jinping himself said that one of the pipeline’s main objectives is respect for the environment: “It is important to pay special attention to environmental protection, to deal with the exploitation of resources in the interests of environmentally friendly, energy-efficient and low-carbon development.” Chinese gas imports in 2018 accounted for about 40% of supply, via pipelines from Central Asia and Myanmar, while the remainder – in LNG – arrived by sea. A further reason for Russia’s attempt to strengthen cooperation: it is no coincidence that the two countries are already talking about a second link, known as Power of Siberia 2, which is expected to pass through the western border, between Mongolia and Kazakhstan.