How Russian energy resources conquered the Chinese market

In China and Russia, the results of the state visit of Chinese President Xi Jinping to Moscow were extremely optimistic, emphasizing in every possible way the strategic partnership of the two powers. In the United States, on the contrary, they believe that the Chinese leader made an irreparable geostrategic mistake by visiting Moscow, not Washington or Kyiv, after being re-elected as head of the PRC.

In other words, he bet on the wrong geopolitical figure.

It’s funny that there were some failed information injections. Bloomberg, for example, published a lengthy article that falsely claimed that Xi Jinping had abandoned the idea of ​​building the Power of Siberia-2 gas pipeline. It is no coincidence that he allegedly evaded comments on energy topics during the briefings.

Smoke is not without fire. This topic has been stuck since 2015, despite some breakthroughs, for example, along the Mongolian part of the pipeline. Beijing is clearly putting pressure on Gazprom for more preferential prices. At least within the limits of payment for gas pumping through the Power of Siberia-1. Last year they did not exceed $230 per thousand cubic meters, while in Europe they periodically overcame the $2,000 bar.

But here we should not forget that the parties agreed on the formula for the price of supplies for Power of Siberia-1 back in 2015. And then, on the premium European market for Gazprom, the cost of gas was not much higher than the Chinese version on average. Loyal, as it was believed in those days, European energy companies filed lawsuits in the Stockholm Arbitration, and they, as a rule, were won when Gazprom tried to raise prices at least to $330-350 per thousand cubic meters.

Recently, the price situation in the gas market has changed dramatically, although European spot prices have collapsed by March 24 to $460 per 1,000 cubic meters. But gas demand began to recover both in Europe and Asia. So some return to the realities of the previous year is expected. And now “Gazprom” can’t afford to sell too cheap. After all, Moscow does not consider itself a “junior partner” of Beijing. In recent historic negotiations, both sides insisted on an equal strategic partnership.

By the way, this year the supply of pipeline gas from our competitors Turkmenistan, Kazakhstan and Uzbekistan began to decrease due to the growth of domestic consumption. These countries can be helped to reorient their exports. The project of the Pakistan Stream pipeline with 12.2 billion cubic meters per year, which will come from Turkmenistan, is already being discussed. The Kabul regime promised him unconditional protection.

Moreover, Xi Jinping spoke about the need to deepen energy cooperation in Moscow. Vladimir Putin, in turn, said that on the “Power of Siberia-2” basically agreed. His counterpart nodded approvingly. In Chinese diplomatic life, unnecessary gestures are not allowed.

Deputy Prime Minister Alexander Novak later explained that both leaders instructed him and his Chinese counterpart to finalize and sign the necessary intergovernmental agreements as soon as possible. Novak hopes that this will happen before the end of this year.

Vladimir Putin developed the energy theme, promising to supply China with 98 billion cubic meters of pipeline gas annually from 2030 (50 billion of which through the Power of Siberia-2) and 100 million tons of LNG.

True, the last figure is puzzling. Officially, no one explained it, many media outlets took it on faith. Meanwhile, last year a record was set – 33.5 million tons of LNG were produced (in cubic meters – 46 billion). Just! On March 7, at a meeting with Alexander Novak, they set the task for manufacturers of liquefied gas and equipment for this to reach the milestone of 100 million tons in 2030. It turns out that we will export all our liquefied gas to China? This is impossible not only because of the violation of the national gas balance. LNG consumption in the domestic market is growing. And China simply does not need so much imported gas.

Thus, the total demand for gas in China this year, even taking into account the economic recovery, will not exceed 400 billion cubic meters. Imports, respectively, – 200 billion. Previously, forecasts were published that by 2030 consumption will increase allegedly by 30% – exceeding 500 billion “cubes” per annum. But now most experts express doubts about such growth. In China, the commissioning of coal-fired power plants continues, the share of “green” and nuclear energy is growing. So, in any case, gas imports by 2030 are unlikely to significantly exceed current volumes. It turns out that Russia in this case will capture almost all gas imports to China: 98 billion cubic meters through pipes and 100 million LNG (138 billion cubic meters). It is unlikely that Beijing will agree to this.

However, one can assume a completely fantastic at first glance scenario. Vladimir Putin and Xi Jinping talked alone for 5 hours. Maybe they could discuss scaling up the Turkish Gas Hub idea? In any case, last year China re-exported 20 billion cubic meters of LNG.

Close attention to the fuel and energy complex in bilateral relations with China is quite understandable, although the Plan for the Development of Key Areas of Economic Cooperation until 2030 provides for as many as eight of them, including in the sphere of high technologies that we need so much.

But it is in the oil and gas sector that irreversible changes have taken place over the past year. In January of this year, according to Chinese customs, Russia ranked first in terms of pipeline gas and LNG imports – 2.7 billion cubic meters. Imports from our country continue to grow. Even more inspiring is the marked increase in Russian exports of crude oil to China. In principle, even before the NWO, Russia came in second place in oil supplies to a neighboring country. According to the results of 2022, according to the General Administration of Customs of China, imports from Russia reached 86.25 million tons. Growth – 8%.

So far, this is the second place after Saudi Arabia (87 million), but since May last year, Russian supplies have significantly outpaced Saudi ones. In January-February, they have already come out on top in the daily amount of 1.94 million barrels. The Chinese government recommended that state refineries resume purchases of Russian oil that were interrupted in March last year. As a result, even the pro-Western International Energy Agency predicts an increase in imports from Russia to 2.2-2.3 million barrels per day.

It should be noted that two-thirds of Russia’s imported oil is not Urals, which is heavily discounted, but EPSO blend. It is supplied via the Eastern Siberia-Pacific Ocean (ESPO) pipeline. 30 million tons directly through the pipeline, most of the rest through the port of Kozmino. According to the Chinese side, the discount for ESPO does not exceed $8 per barrel. For comparison: the discount for Urals in January-February reached $33.

Given the reorientation of Russian exports in general to the global South and East, oil is mainly attached to new buyers.

Leaving the Kremlin, Xi Jinping declared that “changes are coming that have not happened in a hundred years.” And “we are driving this change together.” The Chinese leader’s forecast can be interpreted in different ways. But it seems that he also had in mind the formation of a kind of strategic axis “China-Russia-Iran” (recently, with the assistance of Beijing, Tehran and Riyadh resumed diplomatic relations).

In 1997, former National Security Adviser to President Jimmy Carter, Zbigniew Brzezinski, warned in The Grand Chessboard: America’s Primacy and Its Geostrategic Imperatives: possibly Iran. They are united not by ideology, but by “complementary grievances.”

And he turned out to be right. Washington itself brought these countries into one family. We have no other way out than to reorient the economy towards each other and towards the global South as a whole.