- The Ukraine war is complicating the calculus of China’s energy security and the prospect of a new energy deal with Russia
- Can Beijing afford to be close to a Moscow that is increasingly politically and economically isolated?
Snow covers sections of connected pipework at the Gazprom PJSC Atamanskaya compressor station, part of the Power Of Siberia gas pipeline extending to China, near Svobodny, in the Amur region, Russia, in 2019. Photo: Bloomberg
Two recent developments reveal the possibility of a new energy agreement between China and Russia. First, Russian gas giant Gazprom PJSC announced a contract to design the Soyuz Vostok pipeline across Mongolia towards China. Second, Beijing is reported to be discussing with its state-owned companies opportunities to buy stakes in Russian energy companies, and is also looking at a Power of Siberia 2 pipeline to China.
With the exit of international energy companies from Russia following its invasion of Ukraine, Germany’s decision to halt the certification process of the Kremlin-backed Nord Stream 2 pipeline, and rounds of sanctions on Russia, there are certainly new opportunities for the Chinese government and companies to strengthen their position in the Russian market.
However, even as domestic, regional and global factors may push China towards a new energy deal with Russia, Beijing could also face a range of challenges.
Firstly, Beijing’s ambition to be carbon-neutral by 2060 and replace much coal with gas is one of the most important domestic factors prompting China to further improve its relations with Russia.
Russian gas exports – whether liquefied natural gas or pipeline gas delivered through the original Power of Siberia, for example – would help China reduce greenhouse gas emissions as the country makes a green transition.
Secondly, the withdrawal of Western energy companies such as BP and Shell from Russia due to the Ukraine war creates opportunities for Chinese energy companies, especially state-owned ones, to invest in Russia and diversify their portfolio.
Thirdly, while China also imports gas from Turkmenistan, Russian gas is one of the cheapest options for Chinese consumers, making a new energy deal with Russia that much more attractive.
However, there could also be obstacles to such a deal. One problem could be the political and economic uncertainties now looming over Russia; the deterioration of the Russian business environment under current sanctions might discourage Chinese companies from investing in Russia.
Particularly, sanctions led by Washington seem to inspire caution in Beijing and Chinese companies. For example, the state-run Sinopec Group recently suspended talks about a major petrochemical investment and a gas marketing venture in Russia, apparently heeding a government call to tread carefully with Russian assets.