Booming Synergies in Sino-Russian Natural Gas Partnership

Abstract

A central debate in the study of energy geopolitics concerns the relative importance of the Sino-Russian energy alliance and the lack of the long awaited deal in natural gas. The deadlock in natural gas is all the more puzzling when contrasted to the two countries’ flourishing ties in oil. I explore these developments by comparing the outcomes of the two deals and highlighting the distinctiveness of oil trade vis-à-vis gas trade. I subsequently describe the interplay of different domestic, regional and international policy changes currently taking place, which may pave the way for a breakthrough in the two countries’ gas talks in 2014. I then turn to two scenarios, one optimistic and the other pessimistic, to highlight the increasingly binding forces and some residual fault-lines in the relationship. I conclude by assessing the implications that the two countries’ increased energy synergies might have for the broader world.

After stagnating throughout most of the 1990s and 2000s, the Sino-Russian efforts to conclude a gas deal are finally gathering momentum. In March 2013 at the Russia-China summit in Moscow, the two countries signed a large number of energy deals and crucial compromises have been reached setting the stage for a breakthrough by May of 2014. Further details have been settled in October during Russia’s Prime Minister Dmitry Medvedev’s state visit to Beijing. Russia has abandoned its initial resolve in pushing the Altai route in favor of the ‘eastern’ route for the Power of Siberia gas pipeline. With that decision, Moscow decided to forego some arbitrage opportunities between the European and Chinese markets and opted for a more pragmatic approach. At the same time, China has recognized that in the short-medium term its shale gas production may not be as buoyant as it initially seemed, due to a series of “above ground” obstacles. Faced with a pattern of increasing gas imports, China has been fostering the much needed gas price reform. This, of course, works in favor of a deepening gas relationship between the two giants. Moreover, Russia also offers an ideal combination from China’s security perspective: greater energy independence from sea lanes dominated by the U.S. Navy, and enhanced leverage in dealing with the United States in the South China sea. In sum, this article strongly supports the suggestion that despite persisting residual tension, powerful drivers on both sides have been in motion to bridge the price gap and concretize the deal by the end of 2014.