Taps open for huge Russia-China gas flow

Pipeline partnership seen as counter to U.S. power.

What happened

When Russian gas flowed into northern China on Monday, as Presidents Vladimir Putin and Xi Jinping ordered the taps open, it sent geopolitical ripples across the globe.

The Power of Siberia pipeline enables Russia to tap into China’s vast, expanding market for gas as part of a 30-year contract between state-owned Russian gas giant Gazprom and the China National Petroleum Corp. that promises to soften the impact of Western sanctions on Russia over its 2014 annexation of Crimea.

It also allows Moscow to diversify its markets away from Europe, where most of its gas has flowed in the past.

Why it matters

Russia and China have been moving closer, determined to counter U.S. global power. At a June meeting in St. Petersburg, where the two countries signed a flurry of trade deals, Xi called Putin his “best and bosom friend” and announced that Beijing would send two pandas to Moscow, always a sign of Chinese diplomatic warmth.

In a symbol of the strengthening military ties between Moscow and Beijing, Russia and China staged their first joint air patrol in the Asia-Pacific in July, scrambling Japanese and South Korea air defenses.

Russian supplies to the Chinese gas market could create obstacles for suppliers of pricier U.S. gas and help strengthen Beijing’s hand in trade talks with Washington.

The pipeline launch comes as Russia races to finish the Nord Stream 2 pipeline via the Baltic Sea to Germany so it can pipe gas to Europe while bypassing Ukraine.

Russia has 20% of the world’s gas reserves and accounts for 17.3% of global gas production, supplying nearly 21% of Europe’s pipeline gas imports.

What’s next

China will be the main engine for an increase in global gas demand up to 2024, accounting for about 40%, according to the International Energy Agency.

In thecoming year, the gas flow in the Power of Siberia pipeline to China will be limited, amounting to 4.6 billion cubic meters in 2020, according to Gazprom, and rising to 10 billion cubic meters in 2021. But Gazprom has declared its ambition to provide 38 billion cubic meters to China by 2025 and to supply a quarter of China’s liquefied natural gas imports by 2035.