Page 4 - FSUOGM Week 43 2021

FSUOGM COMMENTARY FSUOGM

Russian plans for second gas pipe

to China take shape

The two countries are closer than ever to a deal on a second gas pipeline, but

certain obstacles still need to be overcome

RUSSIA RUSSIA is shoring up plans to build a second Nevertheless, deliveries could ramp up
natural gas pipeline to China, after reaching an faster as Chinese gas demand picks up amid
WHAT: agreement “in principle” on its route with Bei- the post-coronavirus (COVID-19) economic
Moscow and Beijing have jing. But it could still take many years for the pair rebound.
reached an “in principle” to strike a supply deal to underpin the project, China’s imports of piped gas climbed to a
agreement on the new which is set to cost tens of billions of dollars to record 3.87mn tonnes in September, according
pipeline’s route. realise. to General Administration of Customs (GAC)
Russian President Vladimir Putin announced data published on October 21. The figure was
WHY: at a conference on October 14 that Russia and 2.2% higher than August’s 3.79mn tonnes.
China is worried about China had agreed to run the pipeline through Imports of liquefied natural gas (LNG), mean-
gas supplies, while Mongolia – an option that was first mooted while, rose by 1.5% month on month to 6.75mn
Russia wants to diversify around two years ago. While the existing Power tonnes.
its customer base. of Siberia pipeline carries gas from fields in East- Beijing’s pledge to hit peak carbon emissions
ern Siberia to the Chinese gas market, this sec- by 2030 and achieve carbon neutrality by 2060 is
WHAT NEXT: ond pipeline, known as Soyuz Vostok, will tap also expected to necessitate the closure of many
High international spot large reserves on the remote Yamal Peninsula in of the country’s coal-fired power plants in the
gas prices give Russia the Russian Arctic. years ahead, creating further long-term demand
the edge in negotiating The Russian government sees expanded for cleaner-burning gas.
prices with China. gas sales to China as a strategic priority. It While Chinese officials pushed miners in the
wants to offset its overreliance on European country’s two leading coal regions – Inner Mon-
gas demand, which despite seeing a strong golia and Shanxi – to boost their production
rebound this year, is projected to see long-term earlier this month, the reality is that any surge
decline as Europe shifts towards cleaner forms in coal demand is a short-term prospect at best.
of energy than gas. The country will have to reimpose restrictions on
EU politicians are also growing increasingly coal production as soon as possible as it strives
antipathetic towards Russian gas supply. Accusa- to phase out consumption and meets its interim
tions that Russia is using the fuel as a geopolitical emissions targets.
weapon are nothing new. But Gazprom has been Against this backdrop then, a second, larger
criticised heavily for exacerbating the current pipeline at 50 bcm per year should be a clear
crisis by withholding some supply. choice for both sides. Yet despite the importance
The European Commission has blamed the that Moscow places on expanding its share of the
bloc’s overreliance on gas imports, and has also Chinese gas market, building a pipeline through
proposed a ban on member states buying gas Mongolia is not its preferred choice.
that is produced in the Arctic, which would affect
many of Russia’s largest undeveloped fields. Russian reluctance
As such, a second pipeline delivering some of For years, Russia has been trying to convince
this supply to Chinese buyers could take some of China to agree on laying a second pipeline across
the sting out of such a threat. a narrow border that the two countries share
between Kazakhstan and Mongolia, in the Altai
Supply start-up Mountains. But the latest agreement suggests
Russia began piping gas to China in December that option is now off the table.
2019, when Power of Siberia came on stream. The so-called Altai route had been Russia’s
At full capacity, the pipeline is set to flow 38bn preference, as it would have required less pipeline
cubic metres per year of gas, though Gazprom construction in its own territory. On the other
has said it does not expect that level of supply to hand, China would have had to build thousands
be reached until 2025. of kilometres of pipeline through its sparsely

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