On 29 November 2018, the first Russian-Chinese Energy Business Forum was held in Beijing, the capital of the People’s Republic of China. This event was agreed upon at the meeting between Russian President Vladimir Putin and Chinese President Xi Jinping in July 2018. The mission of the Forum is to enhance energy dialogue between Russia and China, increase efficiency, expand the portfolio of joint projects and attract investment. Representatives of about 90 companies from the energy, financial and IT sectors, government officials, diplomats and experts from Russia and China took part in the forum.[i]
On 29 October 2012, Putin instructed Gazprom CEO Alexey Miller to start construction of the Yakutia-Habarovsk-Vladivostok pipeline. At the end of 2012, it was officially renamed Power of Siberia-1. On 21 May 2014, Russia and China signed a 30-year gas agreement worth $400 billion, which is needed to ensure the viability of the project. The pipeline started operations in October and December 2019, and China imported 4.1 billion cubic metres of natural gas from Russia through the pipeline in 2020.[ii]
The China-Russia energy trade relationship continued to develop after the Russian-Ukrainian War. Between 2021 and 2023, Russian crude oil exports to China increased by a third, while coal and liquefied natural gas (LNG) exports almost doubled. In 2023, Russia became China’s largest crude oil supplier, second largest coal supplier and third largest LNG supplier. Russia has become a country exporting increasing amounts of gas to China via pipeline. Deliveries through the Power of Siberia-1 pipeline increased from 10.4 bcm in 2021 to 22.7 bcm in 2023. This accounted for 34% of China’s pipeline gas imports. Russia expects Siberian Power-1 to reach full capacity of 38 bcm/year by 2025. In addition, China and Russia signed an agreement in early February 2022 for a pipeline called ‘Far Eastern Route’, which will supply 10 bcm/year until 2027.[iii]
At the 6th China-Russia Energy Business Forum held on July 23, 2024, Xi noted that this year marks the 75th anniversary of China-Russia diplomatic relations, and that with the joint efforts of both countries, the China-Russia comprehensive strategic relationship is dynamically advancing into a new era. According to Xi, since 2018, bilateral energy cooperation has become increasingly deep, stable and durable.[iv] In addition, the Power of Siberia-2 natural gas pipeline, proposed after Putin’s visit to China on May 16-17, 2024, will likely be high on the forum’s agenda.
Especially after the war in Ukraine, Russia has been able to direct its oil and coal exports to other markets, but it has not been able to direct its natural gas in a similar way. This is because there is a lack of infrastructure to connect production basins in the West to consumers in Asia. Geopolitical factors are a primary consideration for Russia in natural gas exports. Moscow sees gas as a powerful tool in its relations with counterparts in Eurasia.[v] Russia has the potential to lure Beijing into a closer geopolitical alliance by selling large amounts of cheap gas to China. However, Russia’s negotiating power with China is not as strong as it once was.
Power of Siberia-2 will be less profitable than Power of Siberia-1 due to its high construction costs and the expected low sales price to China. However, the pipeline is expected to generate positive free cash flow if it receives tax breaks, as Power of Siberia-1 did. The project will generate orders for Russian steelmakers and subcontractors and accelerate the economic development of eastern Russia, a priority goal for Moscow.[vi]
China-Russia energy cooperation is undergoing a significant transformation in strategic and geopolitical terms. China keeps the Power of Siberia-2 pipeline project in the draft stage, but has the opportunity to assess the balance between pipeline and LNG imports in its post-2030 import needs. Both China and Russia’s geopolitical calculations have the potential to trigger the completion of Power of Siberia-2. Russia is approaching the Power of Siberia-2 project for non-commercial reasons.
The sharp decline in Russia’s energy exports to Europe after the war and the deficiencies in directing its natural gas infrastructure to Asia have encouraged Russia to deepen its energy cooperation with China. In this context, the completion of Siberia’s Power-2 is not only of economic but also strategic importance for Russia. For China, gas prices and excessive dependence on a single supplier have been among its main concerns. However, worsening relations with the US and increasing uncertainties in the context of global energy security may increase China’s support for Siberia’s Power-2. China has the potential to position Siberia’s Power-2, which will most likely take shape on its own terms when the project is completed, as a major player in the global gas market.
As a result, Siberia’s Power-2 is a critical element affecting China’s and Russia’s energy strategies and geopolitical calculations. The project will not only deepen the two countries’ energy cooperation, but will also lead to significant changes in the global energy market. While China aims to increase its energy security with the Power of Siberia-2 project, Russia will also try to find a new direction in energy exports. This could reshape global energy dynamics and trigger new balance searches in international energy relations.
[i] First Russian-Chinese Energy Business Forum Opens in Beijing, Rosneft, https://www.rosneft.com/press/releases/item/193101/, (Date of Accession: 23.07.2024).
[ii] Ibid.
[iii] The Future of the Power of Siberia 2 Pipeline, Center on Global Energy Policy, https://www.energypolicy.columbia.edu/publications/the-future-of-the-power-of-siberia-2-pipeline/, (Date of Accession: 23.07.2024).
[iv] President Xi Jinping extends congratulations to sixth China-Russia Energy Business Forum, CGTN, https://news.cgtn.com/news/2024-07-23/Xi-extends-congratulations-to-sixth-China-Russia-Energy-Business-Forum-1vtzPCpdbCU/p.html, (Date of Accession: 23.07.2024).
[v] The Future of the Power of Siberia 2 Pipeline, Center on Global Energy Policy, https://www.energypolicy.columbia.edu/publications/the-future-of-the-power-of-siberia-2-pipeline/, (Date of Accession: 23.07.2024).
[vi] Ibid.
