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Energy Deals Are Creating A Powerful Alliance Between China And Russia

The Chinese economic growth miracle is disrupting the global balance of power. President Trump’s trade war with China was the latest manifestation of Washington’s effort to pivot to the east, a strategy that began under former President Obama. Now, another ‘pivot’ is progressing steadily while the rest of the world grapples with Covid-19. Russia is increasingly focusing its attention to the east and its relationship with China. To highlight this pivot, the world’s largest energy producer, Gazprom, has started a feasibility study for the company’s next massive pipeline, the Power of Siberia-2 pipeline.

The first decade of this century was a promising one for Russia, with its international trade booming and a growing number of oil and gas buyers both to the east and west. Moscow’s fallout with the West, however, has strengthened the necessity for a ‘Pivot to the East’. The most obvious and short term result has been the Power of Siberia gas pipeline.

The agreement was struck during the height of tensions between Moscow and the West, when Russia was desperate to show its geopolitical independence in the face of western obstruction. The gas pipeline started operating this year and is expected to transport 38 bcm annually to China, earning Russia $400 billion over three decades.

The importance of China to the Russian economy and the ruling elite’s political future cannot be underestimated. At the same time, while China’s growing technological prowess is bringing it into the western sphere, it will remain heavily reliant on Russia's energy and mineral wealth for decades to power its industries. 

Related: Libya’s Oil Production Jumps To 300,000 Bpd As Exports Rise Relations between these two global superpowers have primarily been focused on energy, where existing infrastructure and industries have facilitated trade. In 2013, Russia and China signed an agreement worth $270 billion to double Rosneft’s production and export of oil to the Asian giant. Natural gas exports have also been on the agenda. Fixed infrastructure, such as pipelines, significantly reduce transportation costs and increase dependence between exporter and importer. This is another catalyst for closer political relations.

While the Power of Siberia-2 project has been on the table for many years, it was only recently that the decision to have Mongolia as the transit country was made. Moscow would have preferred a direct link with China via existing infrastructure in southern Russia through the Altai region, but Beijing pushed for the longer option through Mongolia towards its northeast. It seems that the Chinese preference came out on top.

The Russian energy giant Gazprom has ordered a feasibility study for the Power of Siberia-2 pipeline. This would increase gas exports to China by 50 bcm annually, making it the company’s single largest customer. According to Alexei Miller, Gazprom's CEO, "a preliminary feasibility analysis has been carried out. It has shown that the project is feasible and cost-effective. We are ready to continue this work accordingly." 

 

When finished, the pipeline will further strengthen Russian-Chinese cooperation. While both countries have seen their relations with the West sour of late, they are finding support in their bilateral relations. Russia’s massive energy resources and proximity to Asian markets make it a useful partner for China. From a security point of view, ‘pacifying’ its northern border is essential for China in order to alleviate pressure and focus on its ‘soft belly’ in the South China Sea and, to a lesser extent, the Himalayas and its border with India.

Related: The World’s Most Controversial Oil Frontier Falls Out Of Favor With Big Banks

Whether President Trump wins or loses the election, U.S.-China relations have been significantly damaged to the benefit of Russia. After President Nixon’s visit and the ‘opening of China’ in 1972, Washington was more-or-less able to contain Soviet power and influence. Now, however, the world's number two and three in terms of military and political power are finding a balance vis-à-vis the U.S.

Although disagreements between Russia and China remain, they have managed them effectively so far. For example, Moscow regards Central Asia as its ‘back yard’ where it enjoys significant political influence. China’s growing economic interests in the region could change the delicate balance of power. However, increasing gas imports from Russia is part of Beijing’s strategy. 

Currently, the majority of Chinese gas imports originate from Central Asia. To reduce dependence on the region and push for more favorable prices, competition from Russia is necessary. Therefore, it is in the interest of both countries to strengthen energy ties which will lead to political and economic interdependence. 

By Vanand Meliksetian for Oilprice.com

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  • Mamdouh Salameh on October 07 2020 said:
    What is bringing China and Russia closer is the Strategic alliance between them. Russia and China share a strategic vision against the unipolar world: both see the United States in relative decline and the world already becoming multipolar. In the process of mismanaging its decline, the US suffers from a psychological problem that manifests itself in the unfounded fear of power challenge from potential rivals, hence its persistent attempts to hinder their rise. The world is changing and the world order must be revamped. Pax Americana is over and Washington must adjust to the new world.

    In sharp contrast to mutual suspicion and deteriorating relationship between Washington and Beijing, the Chinese-Russian tie has proved to be a stable strategic partnership built on mutual understanding, respect and national interests.

    As a result of their close strategic alliance, the two countries have been increasingly enjoying mutual economic and security benefits with energy figuring prominently. Russia, the world’s superpower of energy is wedded to China, the world’s largest energy market. Russia is the largest crude oil supplier to China. It is also the largest natural gas supplier too. Furthermore, Russia’s LNG company, Novatek, is supplying increasing volumes of LNG to China particularly that the Chinese have invested heavily in its Arctic plants. Furthermore, Russia is the biggest recipient of Chinese investments under the Belt and Road Initiative (BRI).

    Russia has a special place in China’s energy security considerations. It owns and runs oil and gas pipelines that supply China with oil and gas both of which by-pass the chokepoints of the Straits of Hormuz and Malacca and therefore address China’s energy security concerns.

    Russia is pivoting towards China. To highlight this pivot, the world’s largest energy producer, Gazprom, has started a feasibility study for the company’s next massive pipeline, the Power of Siberia-2 gas pipeline. The Power of Siberia 1 pipeline started operations this year and is expected to transport 38 bcm annually to China, earning Russia $400 billion over three decades.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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