China reaps harvest from Russia sanctions

China is gaining an edge in energy deals with Russia as Moscow faces sanctions pressure from the conflict in Ukraine.

The latest energy accords announced in Beijing on the sidelines of the Asia Pacific Economic Cooperation (APEC) summit suggest that China is increasing its access to Russian resources while resisting demands for more favorable financial terms.

At a signing ceremony on November 9, Presidents Xi Jinping and Vladimir Putin sealed a memorandum of understanding for a second Siberian gas pipeline on a western route that Russia has promoted unsuccessfully for years.

The preliminary commitment to the project known as the Altai pipeline, named for a remote Russian border region, follows an agreement in May on an eastern Siberian gas line to supply China’s coastal cities and industrial northeast.

China has previously balked at proposals for access through Xinjiang, which already provides transit for its pipelines from Central Asia. But Beijing is seen as more amenable to Russia’s push for the western route now that the eastern “Power of Siberia” project is underway, said Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research.

“The signing of energy agreements between China and Russia is a win-win situation for both countries,” said Zhou Dadi, vice director of the China Energy Research Society, as quoted by the official Xinhua news agency.

“The western route is becoming the priority for our gas cooperation,” said Alexei Miller, CEO of Russian monopoly Gazprom, according to Reuters.

Miller said the projects could make Russia’s gas sales to China larger than those to Europe “in a mid-term perspective”, Itar-Tass reported.

Gas is expected to start flowing on the eastern route in 2019, while Gazprom hopes to sign a contract for the western line next year and complete construction in 2020.

On Chinese terms

China has been cool to the 2,600-kilometer (1,615-mile) Altai plan since Putin first proposed it in 2006, but Russia has hotly pursued a breakthrough to offset risks in Europe as sanctions on Moscow have tightened this year.

Both sides praised the mutual benefits of the gas deals, which were among 17 documents on cooperation signed during the summit, but China appeared in the stronger position.

“The Russians are having to come to terms with their reliance on China for energy markets and investment, so it’s being done mainly on Chinese terms,” Herberg said.

On Monday, Russian Finance Minister Anton Siluanov acknowledged the impact that Western sanctions have had on Moscow so far.

Krutikhin and other analysts believe China will have a strong hand to renegotiate gas prices because Russia will have huge investment costs and pipeline capacity to fill, with only one customer on the other end.

Herberg said Russia tried for years to avoid such a trap, arguing against single-customer pipeline projects, only to fall prey to isolation after annexing Crimea and supporting separatists in Ukraine.

Energy investment

There are also signs that Russia has thrown open its previously barred doors to Chinese investment in its energy sector as sanctions put ventures with Western companies on hold.

At the APEC meeting, Russia’s state-owned Rosneft oil company announced a framework agreement to sell a 10% stake in its prized Vankor oilfield to CNPC for an undisclosed price. The field, which produces some 440,000 barrels of low-sulphur crude per day, has been the main source of Russian oil deliveries to China through the East Siberian-Pacific Ocean pipeline.

Such key Russian resources have long been considered off-limits to foreign investment, particularly from neighboring China, but sanctions on Rosneft have been taking their toll.

“Nobody could get access to that or any of what Russia defines as strategic oil assets before,” Herberg said. “So, they’re clearly moving closer together in an energy sense, but I think it’s Russia basically throwing themselves into the arms of the Chinese.”

Full article: China reaps harvest from Russia sanctions (Asia Times)

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