Chinese President Xi Jinpin, sitting alongside Russian
President Vladimir Putin, used a military parade this week marking 80 years
since Japan's defeat in World War Two to project Beijing's military and
diplomatic clout amid heightened trade tensions with Washington.
China backed the pageantry with action on Tuesday, when
Russia’s gas giant Gazprom announced the sides had signed a legally binding
memorandum with Moscow for the construction of Power of Siberia 2, a
2,600-km (1,615 mile) gas pipeline that will run between the two countries. The
project has struggled to take off after more than a decade of fruitless talks.
China will also boost the already large gas volumes it
imports through the existing ‘Power of Siberia’ pipeline. Gazprom CEO Alexei
Miller said on Tuesday that the two countries had agreed to increase supplies
via the pipeline to 44 billion cubic metres a year from 38 bcm.
Additionally, both sides agreed to raise the volume of
Russian gas deliveries to China via a pipeline from Sakhalin Island in Russia's
Far East by 20% to 12 bcm annually.
Taken together, this is yet another indication of the
growing ties between Beijing and Moscow, but more importantly, it is a signal
that China is not planning to back down in the face of US pressure.
Of course, several major hurdles remain for the new Siberian
project.
First and foremost, the sides have yet to agree on the price
of the gas that will be transported through the pipeline. The Gazprom CEO
indicated that the price would be lower than what European buyers paid in the
past.
It also remains unclear whether China will require the
additional volume. Chinese companies in recent years have signed many long-term
liquefied natural gas supply deals, including with US producers, amounting to
around 50 bcm per year of additional supplies through 2030, according to the
Institute for Energy Economics and Financial Analysis.
On top of that, China ramped up its domestic gas production
by 28% between 2020 and 2024 to 246.4 bcm, according to IEEFA.
The bigger problem could be strategic. Completing the new
project would cement Russia's position as the biggest natural gas supplier to
China – and that could be a concern for Beijing.
Russia supplied around 22% of China's gas imports in 2024,
or about 38 bcm, when including pipeline gas and deliveries of LNG, according
to data from the Energy Institute's Statistical Review of World Energy.
The new volumes from the existing pipeline would raise
Russia's share in China’s imports to over a quarter next year, assuming an
increase in the country’s gas demand.
Adding another 50 bcm capacity from the new pipeline, which
likely would not come on stream before 2030, would therefore double Russia's
share of China’s gas imports.
But in today’s new global environment, what might matter
more is that Putin and Xi appear politically invested in making the project
work.
For Russia, the agreement offers a long-term market for its
vast natural gas reserves – something that has become particularly important
since Europe, Russia's biggest gas market for decades, began to wean itself off
Russian gas following Moscow's invasion of Ukraine in 2022.
For China, this appears to be another shot across the bow in
the economic stand-off with Washington.
On a practical level, importing larger volumes of gas from
Russia would reduce Beijing's need to increase U.S. LNG imports, one of the
major promises many other countries have made in trade talks with the Trump
administration.
And then there is the desire to signal defiance – a negotiating
tactic in itself.
It is notable that last week China imported its first
LNG cargo from Russia’s Arctic LNG 2 plant, despite heavy US
sanctions, undermining Trump’s attempts to isolate Moscow and pressure Putin
over Ukraine. Other cargoes from the plant could be heading to China.
The Trump administration has yet to respond to the cargo’s
arrival in Beihai, but the timing just days before Putin’s visit is unlikely to
be a coincidence.
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