Energy Deals Are Creating A Powerful Alliance Between China And Russia

The Chinese economic growth miracle disrupts the global balance of power. President Trump's trade war with China was the latest manifestation of Washington’s efforts to turn east, a strategy that began under former President Obama. Now another "fulcrum" is progressing steadily while the rest of the world grapples with Covid-19. Russia is increasingly focusing its attention on the East and its relations with China. To highlight this pivotal point, the world's largest energy producer, Gazprom, has started a feasibility study for the company's next massive pipeline, the Power of Siberia-2 pipeline.
The first decade of this century was auspicious for Russia. International trade boomed and the number of oil and gas buyers in the east and west grew. However, Moscow's conflict with the west has increased the need for a "pivot to the east". The most obvious and short term result was the Power of Siberia gas pipeline.
The deal was signed at the height of tensions between Moscow and the West, when Russia was desperate to demonstrate its geopolitical independence in the face of Western obstacles. The gas pipeline went into operation earlier this year and is expected to transport 38 billion cubic meters to China annually, bringing Russia $ 400 billion in three decades.
The importance of China for the Russian economy and the political future of the ruling elite should not be underestimated. At the same time, while China's growing technological prowess will bring it to the Western sphere, it will be heavily dependent on Russia's energy and mineral wealth for decades to power its industries.
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Relations between these two global superpowers have been largely centered on energy, where existing infrastructure and industries have facilitated trade. In 2013, Russia and China signed a $ 270 billion deal to double the production and export of Rosneft oil to the Asian giant. Natural gas exports were also on the agenda. Fixed infrastructures such as pipelines reduce transport costs considerably and increase the dependency between exporter and importer. This is another catalyst for closer political ties.
While the Power of Siberia-2 project has been on the table for many years, it was only recently that the decision was made to have Mongolia as a transit country. Moscow would have preferred a direct connection with China via the existing infrastructure in southern Russia via the Altai region, but Beijing pushed for the longer option through Mongolia towards the northeast. It seems that the Chinese preference has the edge.
The Russian energy giant Gazprom has ordered a feasibility study for the Power of Siberia-2 pipeline. This would increase gas exports to China by 50 billion m3 annually, making it the company's largest single customer. According to Alexei Miller, CEO of Gazprom, "a preliminary feasibility study has been carried out. It has shown that the project is feasible and cost-effective. We are ready to continue this work accordingly."
Once completed, the pipeline will further strengthen Russian-Chinese cooperation. While both countries have seen their relations with the West sour recently, they are finding support in their bilateral ties. Russia's massive energy resources and proximity to Asian markets make it a useful partner for China. From a security perspective, “pacifying” the northern border is essential for China to ease pressure and focus on the “soft belly” in the South China Sea and, to a lesser extent, in the Himalayas and along the border with India.
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Regardless of whether President Trump wins or loses the election, US-China relations have been severely damaged in favor of Russia. After President Nixon's visit and the "opening of China" in 1972, Washington was more or less able to curb the power and influence of the Soviets. Now, however, numbers two and three in the world are finding a balance in terms of military and political power with the US.
Although there are still disagreements between Russia and China, they have so far effectively addressed them. For example, Moscow views Central Asia as its "backyard" where it has significant political influence. China's growing economic interests in the region could change the delicate balance of power. However, increasing gas imports from Russia is part of Beijing's strategy.
Currently, the majority of Chinese gas imports come from Central Asia. In order to reduce dependence on the region and seek lower prices, competition from Russia is necessary. It is therefore in the interests of both countries to strengthen energy relations, which will lead to political and economic interdependence.
By Vanand Meliksetian for Oil Genealogie
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