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Energy

Giant Russia-China gas pipeline cements energy alliance

Gas flows into northern China for first time, providing nation with steady supply

Russian President Vladimir Putin speaks to Chinese counterpart Xi Jinping by video link on Dec. 2, marking the opening of the pipeline.   © AP

MOSCOW/CHONGQING -- The first pipeline transporting Russian natural gas to China went operational Monday, highlighting a strategic tie-up between Moscow and Beijing at a time when both countries grapple with economic pressure from the U.S.

The opening of the Power of Siberia trunk line "takes Russo-Chinese strategic cooperation in energy to a qualitative new level," Russian President Vladimir Putin said as he took part in a launching ceremony via video link. The project is "an example of deep integration and mutually beneficial cooperation," Chinese leader Xi Jinping said.

Built by Russian state-backed utility Gazprom, the pipeline runs from reserves in eastern Siberia to the border region in northern China. Gas started flowing in a 2,200km portion of the link from the gas field north of Lake Baikal. The pipeline stretches 3,200 km, with shipment capacity reaching 38 billion cu. meters a year, or about 20% of China's annual liquefied natural gas imports.

The energy link opens at a time when China and Russia are expanding their alliance to counter U.S. pressure. China needs new energy sources in anticipation of a drawn-out trade war with the U.S while Russia is desperate for a steady income as economic sanctions by the West exacerbate its economic pain.

In 2014, Gazprom inked a 30-year supply contract with state-owned China National Petroleum Corp. The Power of Siberia connects to a CNPC pipeline at the border, with a 1,000km section to Jilin Province open for now.

The pipeline network is expected to reach near Shanghai by 2023. The total price tag for three decades is expected to be about 20% less than the $400 billion initially disclosed, if natural gas prices remain weaker than the level when the deal was struck, according to an industry insider.

A 30-year supply contract with China will generate a steady income for Russia.   © Reuters

Fighting smog, China is accelerating its transition to natural gas from high-polluting coal, becoming the world's largest natural gas buyer in 2018, surpassing Japan. Supply from Russia is indespensable to satisfying China's surging appetite for cleaner fuel.

The pipeline launch further solidifies the alliance between Beijing and Moscow in energy. Chinese companies signed a deal to take an interest in the Arctic LNG 2 project in Russia earlier this year. An oil pipeline branch from Russia to northeastern China opened in 2011.

With its trade war with Washington dragging on, Beijing had been scrambling to find energy suppliers other than the U.S., a key LNG seller. Purchases from other countries such as Qatar have increased, but the Power of Siberia project has given China a stable long-term supplier.

Russia is competing with the U.S. as a major gas exporter to the European market, but its prospects have grown clouded in recent years. Russia's 2014 annexation of Ukraine's Crimean Peninsula prompted the U.S. and European countries to impose sanctions on Moscow, complicating its plans for expanding LNG exports.

The Trump administration is also mulling sanctioning Russia's Nord Stream 2 pipeline to Europe, which is expected to be finished as early as this month with a capacity of 55 billion cu. meters a year.

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