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New Energy World
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Russia and China sign major gas pipeline deal
Russia’s Gazprom and China National Petroleum Corporation (CNPC) have signed a major supply deal for the supply of natural gas via the far eastern route, to boost the volume of Russian gas supplied to China by 10bn m3/y.
This is the second long-term purchase agreement for gas to be signed by these two nations. It strengthens the cooperation between Russia and China, while tensions increase over Western gas supplies in the face of threatened incursion by the Russian army into Ukraine.
The first historic deal was made in 2014, when Gazprom and CNPC signed a 30-year sales and purchase agreement for 38bn m3/y of gas for supply via the Power of Siberia gas pipeline. Supplies came onstream in December 2019.
In January 2022, the feasibility study was completed for the Soyuz Vostok gas trunkline construction project, which will become an extension of Russia’s Power of Siberia 2 gas pipeline, traversing Mongolian territory for the supply of up to 50bn m3/y of gas to China. The new deal will see Gazprom’s pipeline supplies to China reach 48bn m3/y.
The stronger energy ties are seen as highly symbolic and have significant geopolitical ramifications, as they come amidst rising tensions in Europe over any potential Ukraine incursion. Meanwhile, Beijing has ongoing trade disputes with Washington.
An escalation of military tensions between Russia and Ukraine could put 155bn m3/y of natural gas imports to Europe at risk if the conflict causes Russia to halt deliveries – corresponding to 30% of western Europe’s annual gas demand, estimates Rystad Energy.
US President Joe Biden has also been conducting gas diplomacy talks and has asked top LNG exporters like Qatar and leading Asian importers to divert LNG to Europe if a conflict was to arise.
The increase in oil and gas trade flows between Russia and China will prompt ‘greater interdependencies’ between the two countries, note analysts at S&P Global. This move will allow Russia to diversify its revenue streams from Europe and enable China to expand its energy sources from the Middle East, US and Australia.
First flows through the new pipeline will connect Russia’s Far East rigs with north-east China and are due to start in two to three years. Gas from the far east Russian island of Sakhalin will be transported across the Japan Sea to north-east China at Heilongjiang Province, reaching 10bn m3 by 2026.