Page 5 - FSUOGM Week 43 2021

FSUOGM COMMENTARY FSUOGM

Source: Gazprom.

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

Week 43 27•October•2021 www. NEWSBASE .com P5