Page 7 - AsianOil Week 43 2021

AsianOil EAST ASIA AsianOil

The country will have to reimpose restrictions on What next
coal production as soon as possible as it strives While an agreement on the pipeline’s route is a
to phase out consumption and meets its interim clear sign of progress, its importance should not
emissions targets. be overstated. Building a gas pipeline between
Against this backdrop then, a second, larger two countries is rarely an easy undertaking,
pipeline at 50 bcm per year should be a clear requiring both strong political will and a firm
choice for both sides. Yet despite the importance commercial rationale.
that Moscow places on expanding its share of the In China and Russia’s case, price has tradi-
Chinese gas market, building a pipeline through tionally been a sticking point in talks. Gazprom
Mongolia is not its preferred choice. and China National Petroleum Corp. (CNPC)
held discussions on a large-scale supply deal for
Russian reluctance the Power of Siberia pipeline for a decade before
For years, Russia has been trying to convince reaching a $400bn sales and purchase agreement
China to agree on laying a second pipeline across (SPA) in 2014.
a narrow border that the two countries share This said, the energy supply crunch in China
between Kazakhstan and Mongolia, in the Altai and high global gas prices may help Russia clinch
Mountains. But the latest agreement suggests a supply deal faster, and at a good price. Given
that option is now off the table. how high spot prices are right now, China is
The so-called Altai route had been Russia’s more likely to agree to an oil-indexed, long-term
preference, as it would have required less pipeline contract in less flexible volume terms, which is
construction in its own territory. On the other Russia’s preference.
hand, China would have had to build thousands “We think that the current gas shortage and
of kilometres of pipeline through its sparsely extremely high prices in both Europe and Asia
populated and restive Xinjiang Province. will make it easier for Gazprom to get a fair price
Analysts at BCS Global Markets estimate that from the deal,” BCS GM said in a research note.
the Altai pipeline would have been 5,000 km in “And we think the odds of a final agreement
length, whereas the pipeline through Mongolia being reached in the next 12 months have much
will only span 4,500 km. And the latter pipe- improved.”
line will also deliver gas to the Chinese border Beyond purely commercial concerns, China
some 2,000 km closer to China’s core industrial is increasingly preoccupied with its mounting
centres. energy security concerns. The country is facing
One downside to this option, however, is that increased opposition within the South China
negotiations will now have to involve a third Sea, not just from its neighbours but also the US,
party, which will likely make the process slower. the UK and Australia.
Given the project’s importance to Moscow, China’s claims to more than 90% of the sea,
Mongolia may seek comparatively high transit which ignore its neighbours’ exclusive economic
tariffs, driving up transport costs. This may be zones (EEZs) as defined by the United Nations
less of a risk, however, when considering that Convention on the Law of the Sea (UNCLOS),
Russia and China are two of Mongolia’s biggest have long stoked regional tensions.
trade partners. In recent years, however, the US and its allies
Russia and China supplied more than 60% have seen this friction as an opportunity to
of Mongolia’s imports in 2019, while China counter Beijing’s growing military, political and
received more than 80% of the landlocked economic influence. This has led to an increase
nation’s exports that year. As such, both Moscow in military activity on both sides, with specula-
and Beijing can exert considerable pressure on tion mounting that an armed conflict may be
Ulaanbaatar, should the Mongolian govern- inevitable.
ment’s demands pose a serious threat to the pro- China relies on shipping lanes within the
ject’s viability. South China Sea to deliver the bulk of its oil and
Negotiations, meanwhile, do create an gas imports, a strategic weak point for the world’s
opportunity for Mongolia to gasify its economy second-largest economy. As such, the impor-
and wean itself off a heavy dependence on coal- tance of securing overland energy supply lines
fired power. This not only creates a new market with political allies is high on Beijing’s agenda,
for Gazprom, but also brings Mongolia closer a situation Moscow may be able to leverage in
into Russia’s economic sphere of influence. its favour.™

Week 43 28•October•2021 www. NEWSBASE .com P7