{"id":75021,"date":"2022-09-08T13:15:05","date_gmt":"2022-09-08T03:15:05","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=75021"},"modified":"2022-09-08T13:43:41","modified_gmt":"2022-09-08T03:43:41","slug":"who-will-buy-russias-gas","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/who-will-buy-russias-gas\/","title":{"rendered":"Who will buy Russia\u2019s gas?"},"content":{"rendered":"
<\/figure>\n

Russia\u2019s attempts to diversify its gas export markets have been in the news of late, and, despite the ambiguities, the prospects for and implications of these moves raise some important geopolitical issues.<\/p>\n

China has increased its purchases of Russian gas, while Europe is attempting to mitigate its dependence. But\u2014leaving Europe\u2019s energy travails aside\u2014what are the volumes of gas involved? Can China provide an alternative market for Russia, and how useful is Russia as a source of gas for China? There\u2019s reason to be sceptical, at least in the immediate future.<\/p>\n

As analysis<\/a> by the Yale School of Management recently observed, the Siberia\u2013China connection, the Power of Siberia 1<\/a> pipeline, isn\u2019t yet operating at full capacity. A lack of pipeline interconnections means that piped natural gas isn\u2019t immediately fungible between markets. There remain disagreements over price, too. China has long desired lower prices<\/a> than those paid by Russia\u2019s Western European customers\u2014though, as a Forbes report<\/a> observes, data backing analysis of relevant pricing agreements is lacking.<\/p>\n

Despite an attempted pivot over the course of 2022, the bulk of Russian gas can\u2019t simply be redirected to China at the same scale in the near term. China purchased just 16.5 billion cubic metres (bcm) from Russia in 2021, while Europe inhaled 170 bcm that same year. Assessing how big the shift has been is very difficult, because China ceased publishing<\/a> pipeline gas import data this year.<\/p>\n

China is a solidly diversified gas importer<\/a>, and it\u2019s unlikely that China\u2019s leadership is keen on increasing the country\u2019s dependence on any one partner in this crucial sector. It imports large amounts of liquefied natural gas, including from the United States and Australia. Australia was China\u2019s most significant gas import source in 2020\u201321, providing 30.7 million tonnes of LNG (on a rough conversion, 42.3 bcm). China has natural gas pipeline connections into Central Asia, the most \u00a0important of which brings piped gas from Turkmenistan. China\u2019s gas demand in 2021 was 367 bcm; even a significant rise from Russia\u2019s Chinese export base of 16.5 bcm in 2021 would be but a small fraction of total Chinese demand.<\/p>\n

The authors of the Yale study conclude that, \u2018when taken in totality, the outlook for Russia in lining up replacement buyers for its\u2026 natural gas production beyond this coming winter seems highly unfavourable\u2019. Energy policy expert Nikos Tsafos came to a similar conclusion<\/a>: \u2018Russia will never have market power in Asia, certainly not compared to its dominant position in the European market. The gas pivot from Europe to Asia will work, but it is not a one-to-one shift by any means.\u2019<\/p>\n

These prospects lie in the long term and require the realisation of massive infrastructure projects (\u2018Power of Siberia 2\u2019 and potentially others), the capital expenditure for which Russian firms are set to have to foot, as well as import market appetite.<\/p>\n

Mongolian Prime Minister Luvsannamsrai reportedly said<\/a> in July that construction of the Power of Siberia 2 pipeline connecting the two countries via his country would begin in 2024. This is an important update to old news; the original agreement for the pipeline was signed in 2019. The reporting suggests that while the aim is for the pipeline to be operational in 2030, \u2018industry executives believe that could be brought forward given Moscow\u2019s need to find markets for its energy supplies\u2019.<\/p>\n

If and when the pipeline is completed, its 50 bcm annual capacity will increase the scope for Russian\u2013Chinese energy trade. If Western Europe can break its import dependence in the meantime, and do so more quickly than many believe is feasible<\/a>, this will surely be welcomed by many. At the same time, a Russian gas sector with secure exports to China means this income source will be much more insulated from Western influence.<\/p>\n

The pipeline is likely to be a plank of the growing, broader strategic partnership<\/a> between China and Russia. Given China\u2019s historical concerns about its \u2018Malacca dilemma\u2019<\/a>\u2014that its import dependence on fossil fuels, especially oil, makes it vulnerable in the US Navy\u2013dominated global maritime commons\u2014this should be expected to form a very significant part of that partnership.<\/p>\n

But as has been pointed out in general, this development is unlikely to change the unequal<\/a> nature<\/a> of the China\u2013Russia partnership. As things stand now, Russia needs the Chinese export market more than China needs Russia as a supplier.<\/p>\n

The other obvious means for China to solve its Malacca dilemma is via renewable sources that might largely obviate its dependence on offshore commodity supplies. Like that for Western economies and militaries, any such opportunity is going to take years to achieve, though the transition is already occurring on massive<\/a> scale<\/a> in China.<\/p>\n

Nonetheless, one analysis<\/a> suggests that China\u2019s gas demand will continue to grow until 2030, and then plateau until 2050. Any hastening of China\u2019s domestic transition to renewable sources would be a welcome acceleration of the collective trajectory towards net-zero emissions but augur poorly for gas exporters.<\/p>\n

Yet it\u2019s impossible to discuss Russian prospects over the decades to 2050 without reference to the weakening of some of its import appetite. Russia remains a \u2018petrostate\u2019<\/a> and climate denial<\/a> has been built into the Kremlin\u2019s public posture. Oil and gas constitute a huge portion<\/a> of Russian exports as well as of Russian government revenue.<\/p>\n

The price-spike-driven<\/a> increase in these export revenues has received much attention since Russia\u2019s invasion of Ukraine began. One recent analysis<\/a> suggests that Russian export volumes continued to decline in June and July, and that reductions have cost Russia more than \u20ac200 million a day since the invasion, but that high gas prices tied to the same crisis have mitigated this impact.<\/p>\n

The prospect of the dysfunctional Russian state<\/a> and economy<\/a> executing a smooth transition away from dependence on fossil-fuel exports is shaky. In the long term, dependence is an unambiguous economic liability for Russia. What constitutes the long term hinges on the pace of the global transition away from fossil fuels.<\/p>\n

From an Australian point of view, while any short-term efforts are likely to be of marginal<\/a> consequence, long-term Russian gas-diversification measures are likely to affect Australian LNG export markets. How these impacts are priced into markets are for financial analysts to comment on. The Power of Siberia 2 pipeline might prove a significant contribution to China\u2019s ability to change the balance of its import sources of gas, and thus free it to import less from Australian suppliers. This is particularly the case if piped gas remains cost-competitive<\/a> compared to Australian LNG, as is likely.<\/p>\n

So, as always, the picture is complicated. Russia can diversify, but not as quickly as it would prefer and not without uncertainty about long-term volumes. Russian\u2013Chinese pipeline gas is ultimately likely to improve China\u2019s import options and allow it greater choice on LNG import volumes, with demand growth out to mid-century likely to level off but not reverse. Over the truly long run, the pace of the transition to renewables in China as well as globally is a key factor underwriting global gas demand.<\/p>\n","protected":false},"excerpt":{"rendered":"

Russia\u2019s attempts to diversify its gas export markets have been in the news of late, and, despite the ambiguities, the prospects for and implications of these moves raise some important geopolitical issues. China has increased …<\/p>\n","protected":false},"author":1519,"featured_media":75025,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[52,1153,1935,2464,163,365],"class_list":["post-75021","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-china","tag-gas","tag-lng","tag-renewable-energy","tag-russia","tag-trade"],"acf":[],"yoast_head":"\nWho will buy Russia\u2019s gas? | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/who-will-buy-russias-gas\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Who will buy Russia\u2019s gas? | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Russia\u2019s attempts to diversify its gas export markets have been in the news of late, and, despite the ambiguities, the prospects for and implications of these moves raise some important geopolitical issues. 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