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38 I Cover story bne September 2022
energy diversification to China are highly contingent.”
Russia has already reached a deal to sell an extra 10 bcm per year of gas to China via a new Far East route, build- ing on the 38 bcm per year it is already contracted to deliver at peak via the Power of Siberia pipeline. But sanctions have hindered the development of the offshore fields that would be needed to supply this gas.
Moscow and Beijing have also discussed sending an additional 6 bcm per year
of gas via Power of Siberia, but James Henderson, an expert at the Oxford Institute for Energy Studies (OIES), notes that it would take until the second half of this decade for the pipeline to increase flow to the full 44 bcm per year.
Russia's largest project in the works is Power of Siberia 2, which would pump 50 bcm per year of gas to China via Mongolia, from fields that currently serve the European market. But a
gas deal for these supplies is not yet in place, and Henderson doubts that deliveries could begin before 2027 at the earliest, with 2030 a more likely start date.
Russia also has aspirations to rapidly expand its LNG export capacity prior to the invasion of Ukraine, but with Western financiers, contractors
and suppliers largely barred from participating in these projects, there are significant obstacles.
If Russian gas exports to Europe drop to 50 bcm per year in the next couple of years, Russia will be unable to replace volumes with additional Asian sales, Henderson notes. But Russia might
be able to achieve a rebalancing of its export flows by the early 2030s, if it can deliver on its project pipeline.
“China’s oil demand is forecast to peak in 2027, and its commitment to net-zero emissions by 2060 could well dimin- ish the need for Russian gas supply,” Shagina says.
India has also been expanding Russian oil purchases in recent months, taking
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advantage of their discounted prices as a result of sanctions. Over the past few months Russia has emerged as India’s biggest oil supplier, expanding its share of the country’s import mix from only 1.3% to 25%. But Shagina notes that any further increase would run into technical and logistical challenges.
“Rerouting Russian oil to India would have to be done via sea routes,” she writes. “This will be harder after the EU and UK’s insurance bans become
and irrevocably tarnishing Russia’s reputation as a reliable supplier. Just
a year ago, Moscow was touting its potential to become a major blue hydrogen exporter to Europe, securing it a place in the energy transition even as demand for hydrocarbons starts to recede over the coming decades. That aspiration is now truly dead.
“Furthermore, without access to foreign technology and capital, it will be a tall order for Russia to launch its
“China’s oil demand is forecast to peak in 2027, and its commitment to net-zero emissions by 2060 could well diminish the need for Russian gas supply”
effective, as European and British insurance companies control over 90% of the insurance market for oil tankers.”
Western allies are looking to impose
a global price cap on Russian oil, by threatening to deny importers access to insurance for tankers unless they agree to pay no more than a certain price.
“This would mean that Indian buyers would have to take more risks and rely on a less developed insurance market,” Shagina notes. “From a political stand- point, China and Russia’s tightening strategic partnership, and Moscow’s expanding relationship with Pakistan, would make India’s increasing energy reliance on Russia difficult to sustain.”
With the EU committing to end its reliance on Russian energy by 2027, and the bloc accelerating its energy transition, it is clear that Russia’s dominance as an energy supplier
to the continent will wane, even if some of Brussels’ targets prove overly ambitious. Russia has already helped realise EU’s goals through its own actions, having substantially reduced its gas exports to the bloc in recent years, forcing countries to push on with LNG import projects as fast as possible,
own green transformation,” Shagina writes. “Russia’s best chance to achieve lies, again, with China. Given Beijing’s slow phase-out of gas, its decarbonisa- tion plan is compatible with Moscow’s own resistance to an aggressively green agenda. China might also be the only source available to Russia of clean investments and green technology in exchange for Russian hydrogen.
“This,” she continues, “leaves
Russia at China’s mercy. Moscow
will become ever more reliant on Beijing, intensifying the imbalance in their already strongly asymmetrical relationship. Beijing is likely to capitalise on Moscow’s isolation, much as it did after sanctions were imposed over its illegal annexation of Crimea in 2014, dictating the conditions on energy deals and extracting maximum benefits while avoiding exposure to sanctions.
“Russia, for its part, has little leeway for hedging given the breadth of the post- invasion sanction coalitions, which include Asian countries such as Japan and South Korea,” Shagina concludes. “Russia’s days as an energy superpower appear to be over.”