Russia’s New Siberian Pipeline to China Remains in Doubt
Udumbara
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Russia’s state oil company, Gazprom, seems to think it has a deal with China to build a second Power of Siberia (PoS-2) natural gas pipeline.
In addition to providing Russia with secure and much-needed cash flow, such arrangements would also give Moscow additional leverage in Europe should the day come when the West lifts the embargo on purchases of Russian energy. The pipeline would also weaken the market power of Russia’s two great competitors on global natural gas markets: Qatar and, significantly, the United States.
Certainly, China has an interest in securing an ongoing energy source. Even though it has considerable Russian supplies through the first Power of Siberia pipeline (PoS-1) and Arctic LNG (liquefied natural gas), as well as arrangements in Central Asia and Qatar, the additional flow would bolster China’s energy security and Beijing’s geopolitical position.
Especially appealing to Beijing is the idea that strength in natural gas would undermine Washington’s economic and geopolitical power. Creating a Russia–China energy nexus away from dollar-based global energy markets would also serve Beijing’s aim to dethrone the dollar’s premier status as the world’s international currency, what economists and bankers call the global reserve. China, however, has reason to hesitate on what Gazprom’s Miller says is a done deal.
Cost is a major consideration. There is no getting away from the expense of PoS-2. It will involve much more expense than previous arrangements and is not expected to pay any return until 2030 at the earliest. Earlier negotiations on PoS-2 give a clear indicator of Chinese reticence. Gazprom had sought Chinese funding for the entire project, but CNPC refused even to consider financing the Russian part of the project.
Another reason for hesitation is China’s commitment to take a certain amount of Qatari natural gas. The additional Russian flow could upset those arrangements. What is more, Beijing has regional problems accepting gas from such a pipeline. PoS-2 will primarily serve North China and be used mainly for heating and industry. But because China’s natural gas-fired power plants are mostly in the south and east, the project would impose on China the need to create further transmission facilities.
Probably most significant of all, the addition of PoS-2 into China’s energy mix would run counter to two technologies that Beijing is actively promoting. One is heat pumps, and the other is batteries. China has already built 250 gigawatts of electrically driven heat pumps and has plans to expand the effort. Meanwhile, batteries and electric vehicles feature in just about every planning document coming out of Beijing. Especially significant is Beijing’s effort to narrow the nation’s need for natural gas by replacing LNG-powered heavy vehicles with battery-powered equivalents.
Beijing may, for geopolitical reasons, bow to Gazprom and Moscow and go ahead with the pipeline project. But as should be clear, there are significant considerations that would make Beijing balk. For the time being, Chinese officials will likely stall. Indeed, if history is a guide, Beijing may delay a decision in the hopes that circumstances will reveal the wisdom of a yes or a no or simply make a decision unnecessary.
