1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Moscow gambles on Beijing gas tie-up

January 12, 2022

A pipeline linking Russian gas with China means that Moscow is driving ahead with gas exports to China, which could allow it to tighten the screws further on EU consumers. Others say it could blow up in Moscow's face.

Power of Siberia pipeline
The Power of Siberia pipeline is the largest gas transmission system in Russia’s eastImage: Gazprom

Even before the recent surrounding possible strategic gas supply cuts by Russia, Moscow's energy plans called for an increase in exports to China. Russia knows that it needs to diversify into new markets as the European Union lowers dependence on its supplies.

Meanwhile, China's demand for gas is growing alongside a perceived need to mitigate potential energy trade wars with the US, the EU and Australia.

China is moving to natural gas as part of its drive to achieve carbon neutrality by 2060. It is already the world's largest gas consumer and buys about 43% of its gas from abroad, including 89 billion cubic meters (bcm) of liquefied natural gas (LNG) and 46 bcm of piped gas, according to the country's General Administration of Customs.

Europe's 541 bcm of annual gas consumption is more than China's 331 bcm, but the latter is expected to rise to 526 bcm by 2030 as Beijing reduces its dependence on coal. The consulting firm McKinsey estimates that China's demand for gas will double by 2035. Its annual gas consumption is expected to reach 620 bcm by 2040 and overtake oil as the leading fuel source by 2050, according to data made public in September by Sinopec, one of China's largest energy companies.

What's caused the global energy crisis?

01:08

This browser does not support the video element.

Russia pivots to China

Russia's Gazprom and the China National Petroleum Corporation (CNPC) signed a $400 billion 30-year agreement deal in 2014 to build the Power of Siberia, a pipeline with a 3,000-kilometer (1,865-mile) section in Russia and 5,000 kilometers in China.

"Russia had in fact been trying to get a pipeline built to China for about a decade before China agreed to it in 2014," Anna Mikulska, from the Center for Energy Studies at Rice University's Baker Institute for Public Policy, told DW.

"The timing of this agreement was not accidental, but followed sanctions that Western countries imposed on Russia after it invaded Ukraine and took over Crimea," she said.

The pipeline was launched in late 2019 and is expected to supply China with up to 38 bcm of gas a year once it reaches full capacity in 2025. Gazprom said it expected 10 bcm to China via the pipeline in 2021.

The project is unique for Russia in that it takes gas exclusively to China and not to several countries, as is the case of gas pipelines into the European Union.

"Russia's focus on gas exports to China is driven partly by geography and economics — and partly by politics. China says it plans to phase out coal, in which case it will need to consume more gas. Beijing is worried about reliance on importing gas by sea, however, in case it gets cut in time of crisis," Chris Miller, assistant professor of International History at Tufts, told DW.

The cost of Russian investments in two gas field developments in eastern Siberia and the pipeline to northeast China is estimated at $55 billion ($48 billion). There was no offer of Chinese loans, but a guarantee to purchase up to 38 bcm per year of gas under an agreed pricing formula.

Almost as an afterthought, Russia only later made upstream opportunities available for Chinese investment, with Rosneft offering a stake in its east Siberian field Vankor in 2016. But Chinese companies declined the offer in what some saw as a slap in the face and harbinger of tough price talks ahead.

At about the same time, China also agreed to be the first foreign purchaser of Russia's S-400 missile defense system.

The Power of Siberia is unique in that it takes gas exclusively to China and not to several countriesImage: Gazprom

Power of Siberia 2

Russian President Vladimir Putin has also green-lighted plans to move ahead with a second pipeline, Power of Siberia 2, which would supply gas from Siberia's Yamal Peninsula, where Russia's biggest gas reserves are.

The new pipeline would be able to transfer up to 50 bcm more Russian gas through Mongolia to China annually. It would deliver gas straight to China's northeastern regions, which are the most densely populated, but it would not be operational until 2030.

In December, Putin and Xi Jinping presented a united front on issues including the AUKUS partnership. Yuri Ushakov, Putin's foreign policy adviser, said the Power of Siberia-2 gas pipeline project was central to the relationship.

Gazprom has registered a subsidiary company in Mongolia and launched a feasibility study for the project. In late October, Gazprom and the Mongolian government announced they had reached an agreement on the exact route. Mongolian Deputy Prime Minister Sainbuyan Amarsaikhan said construction could begin in 2024.

The Power of Siberia 2 is not just a second Power of Siberia, it was originally the path for the first Power of Siberia that Russia was hoping for.

"China didn't like the idea of arbitrage that Russia would have between China and Europe, and Russia ended up going with China's preference as the latter was in a stronger bargaining position after sanctions that were imposed on Russia," Mikulska said.

"Also, though specific numbers are not public, apparently China got a great deal in terms of pricing — lower than what Germany was paying at that time," Mikulska added.

"Some believe that, when prices of oil are lower than $60-$70 per barrel, Russia may not be making any money on the gas it's sending to China but it is OK with this as Power of Siberia could be considered the first step and Russia is hoping that the good will on Power of Siberia 1 will bring a deal on Power of Siberia 2. I don't think China has committed to anything on the latter though yet," she said.

The pipeline has its risks for Russia, with China being a tough negotiating partnerImage: Alexandr Semenov/Gazprom

LNG and the Polar Silk Road

For LNG gas to reach China, it must pass through the Strait of Malacca. Tensions with two of the world's main gas suppliers, Australia and the US, make this fraught with danger and make Russian-supplied gas even more attractive to Beijing.

Russia wants to increase the amount of LNG it supplies via the Arctic Sea route and has expanded LNG production in the Arctic through the Yamal LNG facility, which supplies LNG to Europe and Asia through arctic channels.

China's goal of developing a Polar Silk Road through arctic shipping channels cuts an average of 20 days off the transit goods to Europe when compared with the route via the Suez Canal.

Russian energy firm Novatek completed construction of Yamal LNG despite US and EU sanctions with the help of Chinese financing, which resulted in Chinese companies holding over 20% in the project.

Sino-Russian ties a key question

"Chinese and Russian energy ambitions and needs never match," Albrecht Rothacher, an EU diplomat and East Asia specialist, told DW.

"Gas needs pipeline construction and long-term commitments, and they never worked it out between these two sides. The Chinese in negotiations are very brutal about it. The match is 10:1 economically and demographically. Russia understandably does not like the junior role as a quasi-colonial supplier," Rothacher said.

"With Europe, it is different. Here Russians with their pipelines can turn the screws on and offand and are very good at it," he said.

"China has been in the driving seat from the beginning and really has dictated the terms of the relationship," Mikulska agreed. "Russia doesn't like it but must go with it to survive," she added.

"So far long lasting plans at constructing trans-Siberian pipelines from Siberia to China have never worked due to long-lasting differences about finances and resource control between Russia and China. In the end, this will be encouraging for Europe," Rothacher said.

Edited by: Hardy Graupner

Jo Harper Journalist and author specializing in Poland
Skip next section DW's Top Story

DW's Top Story

Skip next section More stories from DW