The Power of Siberia: A New Step in China-Russia Relationships

On December 2, 2019, a solemn ceremony was held to launch the first ever pipeline deliveries of Russian gas to China via the “Eastern” route — the main gas pipeline “Power of Siberia”, the so-called “Eastern route”.

More than 5 years of negotiations and 5 years of active project implementation

The project was launched in 2009, when Gazprom and the China National Petroleum Corporation (hereinafter referred as “CNPC”) signed a Framework Agreement for the basic conditions of the Russia-China gas supply.

The next stage was the signatures of Gazprom and the CNPC on an Agreement that foresees the basic conditions for the pipeline supply of natural gas from Russia to China via the Eastern route in September 2013, and then in 2014, the Major Agreement for the supply of the Russian pipeline gas to China for a period of 30 years, which involved the export of up to 38 billion cubic meters of gas annually to the Chinese market.

This was followed by a 5-year period of project implementation, with the completion of the cross-border section of the Power of Siberia gas pipeline, including the underwater crossing of the Amur river, in July 2018.

Much more than just a pipeline

In Russia, in addition to the construction of the main pipeline (over 3,000 km), the project foresees:

• The development of two new natural gas fields; and
• The construction of the Amur Gas Processing Plant.

At present, the Power of Siberia exports gas to China from the Chayandinskoye field. Gazprom plans to complete the development of the second Kovyktinskoye field in 2022.

The construction of the Amur gas processing plant shall boost the economic development of the Amur region and other far-reaching Eastern regions of Russia. According to the Gazprom official website, the plant will provide approximately 3,000 jobs, and Gazprom also plans to invest in infrastructural facilities of the region.

Along with this impetus for the domestic economic development of Russia, the Eastern route is beneficial for both parties. In China, gas supplies are concentrated in the northern regions of the country, where the problem of air pollution due to the use of coal enterprises is one of the most severe. The reduction of fuel logistics costs and the competitive price of Russian gas, according to experts, should contribute to the implementation of the five-year plan in combating pollution published in 2018 by transferring manufacturers to gas.

Moreover, for Russia, the project represents an important step towards the diversification of the Russian gas export market and stabilizing Russia’s position in the international gas market. Currently, Europe remains the largest consumer of Russian gas. According to the statistics of Gazprom Export (a Russian subsidiary of Gazprom) for 2018, the company exported 200.8 billion cubic meters of gas to European countries. Of this number, approximately 81% is exported to Western Europe and 19% to Central European States. China’s inclusion in the Russian gas export market should reduce the potential risks related to the prevailing share of Russian gas supplies to Europe.

It shall be noted that China follows the internal diversification of the gas import market, currently main exporters of gas to China are Turkmenistan (33 billion cubic meters per year) and Australia (32.1 billion cubic meters per year). Attracting a new global exporter to the market should ensure greater stability of China’s domestic gas market.

Conclusion

The project represents an important step towards further political and economic rapprochement between China and Russia, demonstrates the reality of the intentions of both States and increases the overall level of trust between the countries. Currently, both countries have already moved on to discuss the next project, “Power of Siberia-2”, aimed at the supply of gas from the Western fields of Siberia. At the same time, the actual impact of the launched project on the economy of both countries will be clear until a time period no earlier than 2025, when the “Power of Siberia” will reach its design capacity of 38 billion cubic meters.