[Salon] China, Russia tipped to power up energy ties as Europe weans itself off Putin’s oil and gas



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China, Russia tipped to power up energy ties as Europe weans itself off Putin’s oil and gas

  • China remains a stable buyer of Russian oil and unlikely to join Western sanctions, analyst says
  • Soyuz Vostok pipeline will expand gas trade between countries already linked by the Power of Siberia pipeline

Laura Zhou
Laura Zhou

15 May, 2022

Energy cooperation between China and Russia is expected to step up, according to observers in China, as Europe looks to wean itself off Russia’s oil and gas after the Ukraine war.

The assessment was made during a closed-door seminar hosted by Renmin University in Beijing by a group of Chinese diplomatic researchers looking into the war’s impacts on China and the global economy.

It also came as Russia, which produced roughly 10 per cent of global oil and supplied some 40 per cent of Europe’s gas before the war, appeared undeterred, even as the West was ratcheting up economic and financial sanctions.

Major Asian economies are among the few remaining buyers of Russia’s oil and gas. India has ramped up oil imports from Russia at substantial discounts, while China, which has bought an estimated 25 per cent of Russia’s oil, has been a stable importer, according to Li Wei, an associate professor with Renmin University’s school of international studies.

“As long as China does not participate in the sanctions, one-quarter of Russia’s crude oil export revenue is safe,” Li said at the seminar, according to an edited transcript published by a WeChat account run by the school.

There has been speculation that China’s refusal to denounce Moscow’s invasion of Ukraine could offer a lifeline to Russia’s struggling economy. Li said Beijing was unlikely to follow the West in sanctioning Russia.

“It is clear that China is not obliged to cooperate with the West on the issue of oil and gas imports, either in terms of economic or strategic interests,” Li said.

Weeks before the invasion of Ukraine on February 24, Chinese President Xi Jinping hosted his Russian counterpart Vladimir Putin in Beijing, and the two sides signed multiple documents on energy cooperation as part of their “no limits” partnership.

And four days after Putin ordered the military operation in Ukraine, Russian gas giant Gazprom announced it had reached an agreement with Mongolia to build a pipeline from its gas fields in the Yamal region to China through a 963km (600-mile) transit section of the gas pipeline in Mongolia.

Construction is expected to start in 2024, and once complete it would allow the delivery of up to 50 billion cubic metres more gas to China. That would significantly expand gas trade between the two countries, already linked by the Power of Siberia pipeline that began pumping supplies in 2019 and aims to supply 38 billion cubic metres – its full capacity – by 2025 to China from gas-rich Yakutia in the Russian Far East.

Cui Shoujun, the deputy dean at Renmin University’s school of international governance, noted that when completed the Mongolian route, known as the Soyuz Vostok pipeline, could be connected to Russia’s westward route to Europe and pump the gas to China instead.

“From a medium to long-term perspective, after Russia lost the market share in Europe, it is China that has the volume to take over,” he said.

Cui said upgraded energy cooperation with Russia could help promote the global use of the yuan.
Russian officials have expressed interest in using China’s currency in trade with China. Iran, which has faced strict sanctions by the US and European Union over its nuclear programme, has used the yuan rather than US dollars to settle oil transactions.

Recently, it was reported that Saudi Arabia was also considering accepting yuan in its oil deals with Beijing. China buys more than 25 per cent of the oil exported by Saudi Arabia, which has the world’s second largest oil reserves after Venezuela.

A strong demand for liquefied natural gas (LNG) facilities, such as tank carriers, could further boost use of the yuan, as more countries in Europe plan to abandon Russian gas and diversify their supplies, for example, to include buying from the US which has pledged to scale up LNG shipments to Europe.

“Countries like the US do not have enough LNG carriers, and China has [one of the] strongest LNG shipbuilding capacities in the world,” Cui said. “China has many ships and could build them quickly, and large LNG ships can bring back the gas, and that also helps promote the global use of the yuan.”



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