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Sat. October 20, 2018
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Russia and China extend energy ties at APEC
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At the APEC meeting in Beijing this November, Russia’s gas giant Gazprom and the Chinese state-owned Chinese National Petrol Corporation signed a 30-year long deal to supply China with natural gas. A framework agreement, signed by Gazprom and CNPC chairmen Alexei Miller and Zhou Jiping, envisages the annual delivery of 30 billion cubic meters (bcm) of natural gas through the Altai pipeline.

The pipeline is a part of the so called Western route – the 3000 kilometre-long route from the Western Siberia heading directly South towards Chinese border, thus surpassing Kazakhstan and Mongolia. In addition to signing the framework agreement of Altai pipeline, the CNPC also announced an agreement with Rosneft on the cooperation to develop Vankor Oilfield project in Eastern Siberia and joint LNG projects.

Unlike the Eastern route – the Power of Siberia, which is part of the multi-billion dollar deal agreed between the two countries in May – the Altai pipeline is economically less justifiable and potentially more interesting for Russia than for China both politically and economically. Although the Altai pipeline was originally proposed by Vladimir Putin in 2006, the revival of this initiative at the APEC summit caries an important political message.

Russia currently only exports gas from Western Siberia to the domestic market and European countries. In light of the current political situation surrounding Ukraine and the Chinese potential to increase natural gas consumption over the next two decades, Moscow is wisely attempting to establish an alternative distribution channel and find an additional source of investment for its oil and gas projects, which are currently heavily affected by Western sanctions.

However, Chinese case for supporting this project is unclear. The Xinjiang region, where the pipeline is supposed to enter China, is the second largest gas-producing region in China with an annual output of 23 bcm and around 425 bcm of natural gas reserves. Western parts of China are well covered with natural gas supplies from Central Asia and the network of West-East network of pipelines, connecting the region with the country’s coastal areas in the East. Moreover, the Power of Siberia pipeline, along with LNG supplies, should be sufficient to cover Chinese gas needs from Russia for a substantial period of time.

China is known for being pragmatic when its investments abroad are concerned. However, in this particular case, Beijing has a political interest in supporting closer economic ties with Russia. China is working hard to establish itself as the regional hegemon in Eastern Asia and Russia’s support and non-interference in this respect is extremely valuable to the regime in Beijing, which sees the United States as its key adversary in Asia.

Both Russia and China would like to see less US presence in the Pacific region. Russia certainly feels threatened by the combined impact of the US shale gas on Asian energy markets over the next decade, and the worsening of the political relations with the West over Ukraine, which will adversely influence its dominance over the European natural gas markets.

Chinese primary interest is to further diversify its energy sources, but also to reduce the potential routs that the US can explore to extend its influence in Asia. Energy will certainly be one of them. With direct and reliable access to Russian oil and gas, China can only improve its geopolitical stance.

Regardless of the political good will on both sides, the fate of the Altai pipeline is still very uncertain. In spite of the framework agreement, there is much to be done before the construction begins. The two sides still have not agreed on the contract value and more importantly on the price of gas. Considering the tough stance of both sides in the negotiations on the Power of Siberia route, the process could be long and laborious.

First appeared in Global Risk Insights.

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