Russia China Gas

Russian President Vladimir Putin attends a joint video conference with Chinese President Xi Jinping during inaugurating the Power of Siberia pipeline in the Bocharov Ruchei residence in the Black Sea resort of Sochi, Russia, Monday, Dec. 2, 2019. China and Russia launched Monday a more than 6,000 kilometer-long gas pipeline in one realization of the countries' long-planned energy partnerships. (Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP)

MOSCOW — When Russian gas flowed into northern China on Monday, as Presidents Vladimir Putin and Xi Jinping ordered the taps open, it sent geopolitical ripples across the globe.

On one side of the border, Russian gas workers, clad in gray and blue, stood at attention in the Atamanskaya gas compressor station near Blagoveshchensk, close to the Chinese border, waiting for Putin’s order to start the flow. Across the border, their Chinese counterparts in bright red overalls stood ready to receive the gas.

The moment was captured on a video link between the two presidents, depicting the gas as little white arrows on the screen, flooding through a blue pipe. The $55 billion pipeline, Power of Siberia, runs almost 1,865 miles from gas fields in Irkutsk and Yakutsk in Siberia to the Chinese border. It represents the latest powerful symbol of the growing ties between Moscow and Beijing, even as China and the United States are engaged in an escalating trade war.

The pipeline enables Russia to tap into China’s vast, expanding market for gas as part of a 30-year, $400 billion gas supply contract that promises to soften the impact of Western sanctions on Russia over its 2014 annexation of Crimea. In China, the pipeline will run 3,175 miles from Heilongjiang province in the northeast to Shanghai, well southeast of Beijing.

The contract between state-owned Russian gas giant Gazprom and the China National Petroleum Corp. allows Moscow to diversify its markets away from Europe, where most of its gas has flowed in the past.

Russia and China have been moving closer, determined to counter U.S. global power. At a June meeting in St. Petersburg, where the two countries signed a flurry of trade deals, Xi called Putin his “best and bosom friend” and announced that Beijing would send two pandas to Moscow, always a sign of Chinese diplomatic warmth.

In a symbol of the strengthening military ties between Moscow and Beijing, Russia and China staged their first joint air patrol in the Asia-Pacific in July, scrambling Japanese and South Korea air defenses.

Russian supplies to the Chinese gas market could create obstacles for suppliers of pricier U.S. gas and help strengthen Beijing’s hand in trade talks with Washington.

The Russia-China gas pipeline launch comes as Russia races to finish Nord Stream 2, a western pipeline via the Baltic Sea to Germany. That pipeline would allow Russia to pipe gas to Europe while bypassing Ukraine.

Russia has 20% of the world’s gas reserves and accounts for 17.3% of global gas production, supplying nearly 21% of Europe’s pipeline gas imports.

Alexander Gabuev, an analyst on China-Russia relations at Carnegie Center Moscow, said that the pipeline sent a message to Europe and the United States about closer ties between Beijing and Moscow but that eventually China could use it to exert pressure for lower gas prices.

“The deal is a symbol of Putin’s pivot to China,” he said.

“In the longer term, cheap pipeline gas from Russia will be in competition with American gas,” Gabuev said, but since the Russian pipeline has just one customer — China — Beijing could exert pressure on Russia, pushing gas prices down.

Energy analyst Andrew Hill, head of the S&P Global Platts gas and power analytics team for Europe, the Middle East and Africa, wrote in a recent blog post that Russia’s position in global gas supplies has never been more dominant.

“This privileged position of resource endowment gave Russia a strength it has had no hesitation using to further its own political, geopolitical and strategic aims over the years,” he said. “By positioning itself between the European markets to the west, and the rapidly growing gas-hungry Chinese markets to the east, Russia is not only creating new income streams, but hedging its bets and bolstering its position strategically.

Hill added: “The deal with China is very much a marriage of convenience. Russia has the gas that China wants, with Russia willingly accepting all the associated geopolitical advantages and the increase in its status.” It also gives Russia the ability to play one market off against the other, he said.

Putin said the 2014 gas-supply contract with China was the biggest agreement in the history of Russia’s gas industry.

Xi said the pipeline was a milestone in energy cooperation that underscored the deep integration between the two countries.

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