The Xi-Putin summit & Power of Siberia 2: China needs Russian energy but isn’t desperate to get it
Scott McKnight, PhD
The top-line
China is perpetually hungry for energy, but it won’t do anything to get it from Russia
At the latest much-heralded summit, Xi Jinping again avoided committing to the gigantic natural gas Power of Siberia 2 pipeline
This rebuttal is the latest example of just how lopsided China-Russia relations have become, with an isolated and bogged Russia holding little sway even with energy-hungry China
China is perpetually hungry for energy, but that doesn’t mean it will do anything to get it from Russia. At the latest summit between Xi Jinping and Vladimir Putin, the Chinese leader again refused to commit to Putin’s pet project, the gigantic $95 billion Power of Siberia 2 pipeline (pictured), that would bring 55 billion cubic metres of natural gas from Siberia through Mongolia and into northeastern China. Neither their joint communique nor Chinese state-run media made mention of the project. This rebuttal-by-omission is the latest sign of an unequal relationship that gets more lopsided as Russia stays bogged down in Ukraine and its economy grinds under Western sanctions. In this ‘no limit’ friendship, China holds all the face cards.
The backdrop
Russia-China relations have always centered on geopolitics. The two countries cozied up to one another after Russia annexed Crimea in 2014. Since then, Xi and Putin have met nearly 40 times, commiserating over NATO expansion and CIA plots dressed up as colourful revolutions. That common worldview ultimately led to their (in)famous declaration of ‘no limit’ partnership at the 2022 Beijing Winter Olympics.
Power up
Energy has been a big part of this post-2014 revival in China-Russia relations. China’s plants, planes and vehicles—gasoline- or diesel-powered or electric—need energy to run and Russia has that energy to sell. Putin’s decision to invade Ukraine in late February 2022 set off a chain of events that effectively restructured the energy trade. Among the many consequences, Russia will likely never again be a large and reliable supplier of energy to Europe. That also explains Putin’s urgency get to new infrastructure in place to replace those lost buyers. It also explains why Putin, probably to Xi’s annoyance, brings up the Power of Siberia 2 project the way a kid asks his parents about getting a puppy every time they meet. What gets lost is that China, while famously hungry for energy of basically all kinds and needing global markets to supply it, isn’t necessarily desperate for Russia’s energy. There are several reasons for this.
The proposed Power of Siberia 2 pipeline
The beauty of having options
First, China has options. In terms of oil, Russia supplies nearly 20% of China’s imported oil, a big but not irreplaceable volume. That’s because China has for years been expanding the number of countries from whom it buys oil. By now, China buys oil in some quantity from basically any country that exports it.
China became the world’s largest LNG importer in 2021
The same goes for natural gas. In 2021, China became the world’s largest importer of liquefied natural gas (LNG), happily buying from the few dozen countries that export it while furiously signing more contracts to secure future supplies. For Chinese leaders, forever worried about supply disruptions and price shocks, bringing in gas by vessel (as LNG does) allows for greater flexibility than pipeline, a lesson that Europe learned the hard way last year. This multi-year diversification push for foreign oil and gas has made China practically invulnerable to supply shocks in energy-rich countries.
Second, in a similar vein of diversification, last September China began building a 30 bcm pipeline to Turkmenistan, a hermit kingdom in southcentral Asia that has been a problem for Beijing in the past but one that China can sway with carrots and sticks.
Third, China in the past decade has nearly doubled its domestic gas output. That fits with the government’s plans to clean up its skies, wean off coal and reduce emissions overall, including efforts to peak emissions by 2030 and becoming carbon-neutral by 2060. China National Petroleum Corporation (中石油), more commonly known as PetroChina, has heeded the call, following the trend of other supermajors to become more gas than oil company.
Fourth—and this may be the most surprising—China may not need much more natural gas than its current contracts promise to supply. China definitely doesn’t need the volumes that Putin wants to ship for decades going forward. Although China’s natural gas consumption jumped about 12% per year through the 2010s, those numbers will smooth out considerably, expected to rise only 2% per year in the 2020s, according to the IEA. By the 2030s, gas demand will have flatlined in China because the same fuel-switching from coal to gas that the Americans and British pursued isn’t the path the Chinese will take.
The trends aren’t in your favour, Vlad
China’s natural gas trends clash with Putin’s vision of what energy sources Chinese will be using in years to come. The Power of Siberia 2 pipeline would basically double the volume of natural gas that currently moves from Russia to China.
But it may be the staggering share of China’s imports that has held back Chinese policymakers from committing to the project. If built, the pipeline would make Russia the source of more than half of China’s natural gas imports, a level of market power that Russia had over Europe on the eve of the invasion, and a level of dependence that Chinese leaders have no interest in replicating.
Loud thunder, few raindrops (雷声大雨点小)
Putin wanted something big from his summit with Xi to show the world that, despite being shunned by the West, declared a war criminal at large by the International Criminal Court and humiliating defeats in Ukraine, Russia still had options and influence. Instead, the joint statement didn’t mention the Power of Siberia 2 project or the ‘no limit’ friendship.
Sanctions, the reshuffling of global energy trade, and the sharp fall in energy prices (oil fell 10% to levels not seen since well before the invasion) may all appear like an irresistible opportunity for China’s capital-rich, knowledgeable, state-backed oil and construction companies to buy Russian energy on the cheap and to build out infrastructure to get more of Russian resources to Chinese buyers. Yet when it comes to the giant Power of Siberia 2 project, the Chinese haven’t budged. So, while Putin looks to replace his lost European buyers with Chinese ones—largely a self-inflicted wound—the Chinese aren’t eager to jump into that void and take on that new mantle of dependence.
