Russia and China Strengthen Energy Ties Amidst European Deterioration

Strategic Insights -

As Russia's largest trading partner and biggest purchaser of Russian energy, China has become a key beneficiary of Moscow's energy outreach efforts. The growing energy cooperation between the two nations has been underscored by Gazprom's agreement to increase gas supplies to China via the existing Power of Siberia pipeline and the signing of a memorandum on the construction of the Power of Siberia 2 pipeline. This development is particularly notable in light of Russia's loss of significant market share in Europe following the 2022 Ukraine conflict and the EU's plan to fully phase out Russian energy by 2027.

Key Takeaways:

  • Gazprom has agreed to increase gas supplies to China via the Power of Siberia pipeline to 44 bcm per year from 38 bcm, with the deal expected to reach planned capacity of 38 bcm this year.
  • Russia and China have signed a memorandum on the construction of the Power of Siberia 2 pipeline, which will deliver 50 bcm per year to China through Mongolia from the Bovanenkovo and Kharasavey gas fields in Yamal.
  • The prices of gas supplies to China are lower than those Russia charged European buyers, due to the vast distances and terrain over which pipelines had to be built.
  • China is now Russia's biggest trading partner, the biggest purchaser of Russian crude and Russian gas, the second-biggest purchaser of Russian coal, and the third-biggest purchaser of Russian LNG.
  • Gazprom supplies natural gas to China through a 3,000 km pipeline called Power of Siberia under a 30-year, $400 billion deal launched at the end of 2019.
  • Russia's gas exports to China are still a small fraction of the record 177 bcm it delivered to Europe in 2018-19 annually.

Statistics:

  • Russia's gas exports to China in 2024 totaling 31 bcm, up from 10 bcm of gas annually by 2026-2027 via a pipeline from Sakhalin Island.
  • Gazprom's supplies of natural gas to China via the Power of Siberia pipeline are expected to reach 44 bcm per year by 2023, up from 38 bcm.
  • The Power of Siberia 2 pipeline will have a capacity of 50 bcm per year, making it the world's biggest and most capital-intensive gas project.
  • Russia's gas deliveries to China via the Power of Siberia 2 pipeline will be negotiated separately from prices charged to European buyers.

Sources:

  • Reuters, "China seeks more Russian gas through existing pipeline after talks fail"
  • Reuters, Gazprom CEO Alexei Miller quoted as saying, "Today, a legally binding memorandum was signed on the construction of the Power of Siberia 2 gas pipeline and the Soyuz Vostok transit gas pipeline through Mongolia"
  • Russian news agencies, Gazprom CEO Alexei Miller quoted as saying, "The prices of gas supplies to China are lower than those Russia charged European buyers, due to the vast distances and terrain over which pipelines had to be built"
  • Xinhua, China's state news agency, reporting on the meeting between President Xi Jinping and President Vladimir Putin in Beijing