By Georgi Kantchev | Photographs by Arthur Bondar for The Wall Street Journal
SVOBODNY, Russia -- An 1,800-mile pipeline is set to begin
delivering Russian natural gas to China on Monday. The $55 billion
channel is a feat of energy infrastructure -- and much more.
Russia's most significant energy project since the collapse of
the Soviet Union, the Power of Siberia pipeline is a physical bond
strengthening a new era of cooperation between two world powers
that have separately challenged the U.S.
Beijing and Moscow, after years of rivalry and mutual suspicion,
are expanding an economic and strategic partnership influencing
global politics, trade and energy markets. At the same time,
Beijing is fighting a trade war with Washington, and Russia's
relations with the West grow colder.
"China and Russia joining forces sends a message that there are
alternatives to the U.S.-led global order," said Erica Downs, a
Columbia University fellow and former CIA energy analyst.
Presidents Vladimir Putin and Xi Jinping will lead the opening
ceremony of the pipeline via video links. Mr. Xi has described the
Russian leader as his "closest and most intimate friend" among his
foreign colleagues.
Russia, which has the world's largest proven gas reserves, needs
cash as its economy buckles under Western sanctions. China, with
the world's second largest economy after the U.S., needs fuel and
wants to wean itself off coal.
"China needs energy resources, and Russia has such resources,"
Mr. Putin said in October. "This is an absolutely natural
partnership, and it will continue."
The collaboration took off after the U.S. and European Union
moved to punish Moscow for taking control of Ukraine's Crimean
Peninsula in 2014. Facing painful sanctions, the Kremlin turned to
countries that wouldn't shut it off.
Russia officially annexed Crimea in March 2014. The pipeline
deal with China was settled that May, in a $400 billion gas-supply
agreement signed by Messrs. Putin and Xi.
Cooperation has since extended to military ties. In September
2018, Chinese and Russian troops took part in joint maneuvers, the
first time Moscow invited a country outside a tight circle of
former Soviet allies to its largest annual exercises.
Russia-China trade reached a record level that year, exceeding
$100 billion, according to Russian government data.
In June, China's Huawei Technologies Co. struck a deal with
Russian mobile operator MTS to develop a 5G network in Russia,
while on a export blacklist in the U.S.
Earlier in November, the U.S. Federal Communications Commission
labeled Huawei and China's ZTE Corp. as a "national security
threat." The move bans American companies from using federal
subsidies to buy or maintain products from those firms. Huawei
plans to fight the decision; its founder said this month that his
company "can survive very well without the U.S."
As Moscow seeks to de-dollarize its economy, China's yuan has
become a larger part of Russia's foreign-currency reserves,
increasing to 14.2% in March from 5% the year before, according to
the Russian central bank. The shift helps boost trade further as
Russia looks to do more business with China in yuan.
The alliance isn't without its challenges. Cooperation could be
dented by a competition for influence in regions such as Central
Asia. Russia's Far East has recently seen protests against
Chinese-funded ventures, such as a water bottling plant on Lake
Baikal and timber logging in the Siberian forests. Locals have
dubbed the influx of visitors and enterprises a "Chinese
invasion."
China's much-larger economy, eight times bigger than Russia's,
gives it greater leverage in trade relations, while some in Russia
see it as the junior partner in the relationship.
New access to Russian natural gas also gives Beijing leverage in
the trade war with the U.S. by making China less reliant on
America's generally pricier liquefied natural gas. Shipments of
American liquefied natural gas were growing rapidly until China
introduced a 10% import tariff last year. After Beijing raised the
tariff to 25% in May, natural gas deliveries from the U.S.
halted.
"Had the trade war not been there, the U.S. would have been a
very promising gas supply growth source for China," Hou Qijun,
president of PetroChina, China's top oil and gas producer, said in
August, according to the South China Morning Post. The company is
increasing its investment in Russian gas projects, Mr. Hou
said.
When asked about the China-Russia energy trade, a company
spokesmansaid it would "rationally buy [gas] according to actual
demand and procurement costs."
Russia's entry in the Chinese gas market will continue to be a
major obstacle to U.S. liquefied natural gas producers even if
Washington and Beijing agree on a trade deal and lower energy
tariffs.
"Once you put in the pipeline, its literally a sunk cost," said
Anna Mikulska, energy fellow at Rice University's Baker Institute
for Public Policy. "That will close some doors to U.S. LNG."
The Power of Siberia project, built and operated in Russia by
state-owned Gazprom, will connect Siberian gas fields with China's
northern industrial hubs, snaking through inhospitable terrain --
swamps, mountains and permafrost, in temperatures as low as minus
80 degrees Fahrenheit.
At the Atamanskaya compressor station, where the gas will be
pressurized before it enters China 90 miles away, engineer Pavel
Vesnin walked among dozens of valves and spigots and pointed to a
white marker on the ground indicating where the
4-foot-9-inch-diameter tube passed below.
"The pipeline is so large that I can walk inside it almost
without bending my back," he said.
The energy cooperation with Russia is augmenting Beijing's clout
in the Arctic, where the U.S., Canada and others compete for
shipping lanes and resources. China, which doesn't border the
Arctic, now has a seat at the table.
Beijing has invested billions of dollars in Moscow's big gas
projects in the Arctic to the north of the Power of Siberia
pipeline. China's biggest ocean carrier, Cosco Shipping Holdings
Co. entered a joint venture with its Russian state-owned
counterpart, PAO Sovcomflot, to operate a fleet of ice-breaking gas
tankers.
For years, the Russia-China energy partnership was one of
unfulfilled potential, blunted by a history of suspicion and
rivalry defined by differences in ideology and a competition for
the leadership of the communist world. That included border clashes
and a breaking of relations during the Cold War.
An oil pipeline, which had been under discussion since the
1970s, finally launched in 2009. Progress with the gas link also
was slow, frequently hobbled by price disputes and lack of
infrastructure.
Since the 2014 gas deal, Moscow has also increased its oil
exports to China enough to challenge Saudi Arabia as the country's
top crude supplier.
The Power of Siberia project will begin by exporting 5 billion
cubic meters of natural gas this year and gradually ramp up to 38
billion cubic meters by 2025, the equivalent of Brazil's annual gas
consumption.
China is expected to become the world's largest gas importer
next year and account for more than 40% of global gas demand growth
through 2024, according to the International Energy Agency. With
Power of Siberia, Russia could fulfill nearly 10% of China's gas
demand by 2024, according to IEA data.
The two governments are already discussing a sequel: a gas
pipeline through Mongolia. The energy relationship is a sign of a
broader geopolitical alignment, said Alexander Gabuev, senior
fellow at the Carnegie Moscow Center think tank.
"Energy is win-win for Russia and China, both economically and
strategically," he said.
--Stephanie Yang contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
(END) Dow Jones Newswires
December 01, 2019 13:45 ET (18:45 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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