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What the ‘Power of Siberia’ Tells Us About China-Russia Relations

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What the ‘Power of Siberia’ Tells Us About China-Russia Relations

Are we on the verge of a new era of natural gas geopolitics?

What the ‘Power of Siberia’ Tells Us About China-Russia Relations
Credit: Russian Presidential Press and Information Office

The strategic partnership between Moscow and Beijing, one of the main features of contemporary global politics, has been fortified by a keystone improvement in their energy cooperation. With the official launching on December 2, the Power of Siberia gas pipeline has become a reality. The new gas pipeline is the largest gas infrastructure in the entire Russian Far East and extends for nearly 3,000 kilometers, connecting the enormous Siberian fields of Kovyktinskoye and Chayandinskoye to Blagovehensk, the Russian city on the Amur river that marks the border between the Russian Federation and the People’s Republic of China.

Both Russian and Chinese presidents viewed, connected via remote video link, what Russia’s Vladimir Putin described as an “historic event, not only for the global energy market but primarily for you and me — for Russia and China.” For his part, China’s Xi Jinping referred to the Power of Siberia as a “seminal project of bilateral energy cooperation” that will serve as an “example of deep integration and mutually beneficial cooperation” between the countries.

The signing of the contract, worth around $400 billion, was announced in Shanghai in May 2014, a few weeks after the annexation of Crimea to the Russian Federation. Many observers were keen to portray the event as the critical juncture in which Moscow was finally turning to Beijing in order to safeguard itself from Western diplomatic and economic encroachment during the initial phases of the Ukrainian crisis. As a matter of fact, Russian projects exporting oil and natural gas toward the Asian market represent a long-time goal of the Kremlin, dating back to the first Yeltsin presidency. The 2014 contract will require Russian Gazprom to supply China National Petroleum Corporation (CNPC) with 38 billion cubic meters (bcm) of natural gas per year for the next 30 years. For a comparison, that amounts to more than the annual consumption of natural gas in Brazil and slightly less than the whole consumption of France.

Exports of Russian natural resources are economically vital. According to the Federal Customs Service, during the period from August 2018 to September 2019 they accounted for 65.38 percent of the entire volume of exports. The export of natural resources is also a major component of the Russian state budget. In 2018 the oil and gas sector accounted for 46.35 percent of budget revenues, a sharp increase compared to 39.57 percent in 2017, which is mainly due to rising oil prices and the start-up of a new oil pipeline to China in January 2018.

Russia is the largest global exporter of natural gas, with more than 247 bcm in 2018. The European market stands as the major recipient, with deliveries or around 200 bcm during the last year.

China, however, is the world’s major market for importing natural gas and the International Energy Agency expects Chinese growth to account for more than 40 percent of the global gas demand until 2024, pushed by government policies aimed at improving air quality and reducing the use of coal in power generation (now around 58 percent). A key element for the implementation of the Three-Year Action Plan for Winning the Blue Sky War 2018-2020, published in July 2018, is to accelerate the conversion of industrial plants and households appliances from using coal to natural gas, especially in northern China. As a consequence of Beijing’s policies, in 2018 the consumption of natural gas increased by 17 percent compared to the previous year, while imports surged by 30.8 percent.

Russia in particular is set to benefit from this rising demand. As an example, the trade war between Washington and Beijing has stopped all Chinese imports from the United States of liquefied natural gas (LNG) since last May. The president of PetroChina, the listed arm of state-owned CNPC, said last August that “Had the trade war not been there, the U.S. would have been a very promising gas supply growth source for China.”

The development of a new web of gas pipelines and the production from new fields located in the Russian Far East is seen as a cornerstone for the development of these regions by the Kremlin. After the fall of the Soviet Union the population decreased by an average of 20 percent, reaching staggering figures of 70 percent in certain regions, as many relocated to western Russia.

At the moment, the Far Eastern Federal District, which is the largest but also the least populated in the Federation, has a gas grid coverage that averages 13 percent, while the Siberian Federal District, a region more than 7 times the size of France, is covered at around 6.8 percent. Russia’s countrywide level stands at 67.2 percent.

Therefore, the development of infrastructure in the Russian Far East is not just aimed at improving access to Asian markets, but it is also seen by the Kremlin as a necessary initiative for the industrial and social development of the entire region. In 2015 Putin confirmed that the future of the Far East remained a “key socioeconomic development center for Russia, and a region that should be effectively integrated into the developing Asia-Pacific region as a whole.”

Indeed, the development of Eastern Siberia and of the Russian Far East are deeply associated with the integration of the Russian Federation with the Northeast Asian markets. This means not just China, but also Japan and South Korea, then possibly stretching towards Southeast Asia.

For Nikolai Patrushev, the Russian Security Council Secretary, the strengthening dialogue with China is an “absolute and long-term priority” aimed at ensuring the “national security and stable social and economic development.”

The increasing energy interdependency between Moscow and Beijing is key to understanding the long-term relationship between the two governments. However, the energy partnership does not stop with the Power of Siberia, as Beijing is an outstanding partner for Moscow’s efforts in developing its Arctic resource base as well. Investments and technologies provided by China have been pivotal in completing the Yamal LNG project ahead of schedule. Chinese companies, together with the French Total and a Japanese consortium, have also entered the Arctic LNG-2 project managed by the Russian NOVATEK, disregarding the American and European sanctions to the Russian energy sector.

Against the expectations of many, the Power of Siberia was completed 18 days ahead of schedule. Now Moscow and Beijing are negotiating over the construction of a new gas pipeline from Gazprom’s fields in the Yamal Peninsula toward China, possibly passing through Mongolian territory. During the last meeting with Russian Prime Minister Dmitry Medvedev, Mongolian Prime Minister Ukhnaagiin Khurelsukh stressed Ulaanbaatar’s gratefulness to Moscow for supporting such an important project.

This time, however, Russia is bargaining with China over new supplies from the same fields that are now delivering gas to the European markets. In case of difficulties in Europe, Putin has already stated that Russia will “easily switch streams to the East.” Are we on the verge of a new era of natural gas geopolitics?

An earlier version of this article was published in Italian for the Istituto per gli Studi di Politica Internazionale (ISPI) based in Milan, Italy.

Francesco Sassi is a Ph.D. candidate at the University of Pisa. His research interests are focused on the use of national oil companies as foreign policy tools and energy security issues in Eurasia.