Xi and Putin agree on another gas pipeline

Just before the opening of the Winter Olympics in Beijing on February 4, Russian President Vladimir Putin became the first foreign leader to meet Chinese President Xi Jinping face-to-face in two years (Mongolian Prime Minister Oyun-Erdene met with Xi two days later).


Xi and Putin subsequently issued a joint statement through the Kremlin's press office. In the statement, China openly supported Russian opposition to the further enlargement of NATO and Moscow's other security demands in Europe, representing a new level of unity between the two countries.


At the same time, Russian gas giant Gazprom signed a 30-year contract with the state-owned China National Petroleum Corporation (CNPC) to supply gas to China through a new pipeline from the island of Sakhalin.


Once operational, the new line will increase Russian gas supply to China by 10 billion cubic metres per year (bcm/yr), to a total forecast of 48 bcm/yr. The total includes 38 bcm/yr supplied through the Power of Siberia line. According to Reuters, the sales of gas could generate $37.5 billion over 25 years.


The new line would connect Khabarovsk to the Chinese network. Credit: Gazprom
The new line would connect Khabarovsk to the Chinese network. Credit: Gazprom

“This is already a second contract to be signed for Russian gas supplies to China, and it is indicative of the exceptionally strong mutual trust and partnership between our countries and companies. Our Chinese partners from CNPC have already seen for themselves that Gazprom is a reliable gas supplier,” Gazprom chief Alexey Miller said in a statement.


In the same statement, Gazprom also noted the completion of the feasibility study for the Soyuz Vostok gas trunkline across Mongolia, an extension of the Power of Siberia 2 line that Gazprom says will 'make it possible to supply up to 50 bcm/yr of gas to China' – in effect doubling current exports.


The study, which relied on on-site surveys, mapping and route analysis conducted by Mongolian companies, outlines a plan for the pipeline to stretch 962.9 kilometres across Mongolia, including five compressor stations.


Russia's eastern pipelines, including the Power of Siberia, are not connected to Russia's pipeline distribution network to Europe – though a connection is possible, which would place CNPC in direct competition with European buyers for Russian gas, a situation which some believe has made Russian gas less attractive to the Chinese.


However, when seen in the context of Putin's meeting with Xi and increasing Chinese support for Russian foreign policy, this latest deal indicates that Beijing may have more tolerance for increasing its dependence on Russian energy. Russia currently supplies about five per cent of Chinese gas demand through both pipeline and LNG exports and is China's second-biggest oil supplier after Saudi Arabia.


If so, this could be good news for the Power of Siberia 2 trunkline across Mongolia, which would create a new source of income for the Mongolian government.


Yet Chinese investments in energy imports seem to occur irrespective of wider geopolitical tensions. In December, American company Venture Global announced that it had signed a 20-year deal with China National Offshore Oil Corporation (CNOOC), the first of its kind.


Beneath all this lies China's relentless demand for gas: the country became the world's largest buyer of LNG in 2021. The growing market has seen companies such as Elixir Energy exploring potential natural gas deposits under Mongolia's Gobi desert for export to China.


Yet hard questions remain for Mongolia to answer. How much dependence on Russian energy is Beijing willing to tolerate, and is there an opportunity for Mongolian gas development?


And looking beyond energy: is Mongolia in the middle of increasing geopolitical alignment between Beijing and Moscow?

 

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