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International relations

Russia deepens China ties with expanded energy exports

Doubling of coal trade aimed to supplant that with Australia

Russian President Vladimir Putin and his Chinese counterpart Xi Jinping tour the Kremlin after their talks in Moscow in June 2019. (Kremlin via Reuters)

MOSCOW/BEIJING -- Eyeing an opportunity to strengthen energy exports to China, Russia has launched new ventures and pipelines that will deliver coal, natural gas and petrochemicals to the world's largest energy consumer.

One of these projects envisions doubling Russia's coal exports to China -- enough to replace imports from Australia, with which China's relations have deteriorated.  

Chinese President Xi Jinping and Russian President Vladimir Putin agreed to pursue greater cooperation across a range of fields, including large-scale energy and industrial projects, in a phone call on Dec. 28.

Describing 2020 as an "extraordinary year," Xi said that "true gold can stand the test of fire, and the difficult period has given more prominence to the unique strength and great value of the China-Russia relationship," according to China's official Xinhua News Agency. 

"By strengthening strategic cooperation, China and Russia can effectively resist any attempt to suppress and divide the two countries, and meanwhile forge a solid shield to safeguard international fairness and justice," he said, suggesting that the two countries form a united front against headwinds from the U.S. and Europe.

Elgaugol, the company behind the Elga coal project in the Russian Far East, agreed on Dec. 15 to launch a joint venture with China's Fujian Guohang Ocean Shipping (Group) that will export metallurgical coal to China. The Elga project is expected to ship 30 million tons of coal to China in 2023, which would almost double Russia's total coal exports to China from about 33 million tons in 2019.

The countries' cooperation on coal is partly intended to deliver a blow to Australia. China has imposed restrictions on several Australian exports, including coal, after Canberra called for an independent inquiry into the origins of the coronavirus outbreak.

About a quarter of China's coal imports came from Australia in 2019. Elgaugol Director-General Aleksandr Isaev said his company will replace most of the shipments to China from the U.S. and Australia.

Russian petrochemical company Sibur Holding on Dec. 28 also announced a joint venture at the Amur Gas Chemical Complex with China Petroleum & Chemical Corp., or Sinopec. Construction of the plant is expected to begin in earnest now that the companies have received the relevant approvals, and is slated for completion in 2024. Sinopec will own 40% of the facility.

A compressor station for Gazprom's Power of Siberia gas pipeline in Svobodny, Russia: the state-run company is extending the pipeline to boost exports to China.   © Reuters

The trend extends to natural gas as well. State-backed Gazprom has kicked off an 800 km extension of the so-called Power of Siberia pipeline, which began transporting natural gas from Russia to China in December 2019. The extension will connect the pipeline to the Kovykta gas field in eastern Siberia by the end of 2022, in a step toward Gazprom's goal of boosting flows through the pipeline to 38 billion cu. meters annually by 2025. Flows came to 3.8 billion cu. meters for the first year.

Gazprom, which holds a monopoly on the export of gas through pipelines, transported 200 billion cu. meters of gas to Europe and Turkey in 2019. But the company has been shifting its focus east, and last year began a feasibility study for another pipeline that would deliver 50 billion cu. meters of gas to China via Mongolia.

Russia also began operating a new oil pipeline to northeastern China in 2011.

As the world's top energy consumer, China has long enjoyed a complementary relationship with Russia, a key energy exporter. Their ties have become even stronger in recent months in the face of political pushback from the U.S., Europe and Australia.

Xi is rushing to diversify his country's energy supply, with the U.S. only expected to increase its pressure on China under President-elect Joe Biden. Russia is a key part of his plan.

"Russia will play an even bigger role in China's energy security, given that tensions with the U.S. are expected to persist over the long term," an industry insider said.

Russia, too, has also had to deal with harsh pushback and sanctions by the U.S. and Europe since it annexed the Crimean Peninsula in 2014. With Europe also planning to significantly increase renewable energy use, the country is under pressure to boost exports to China in order to underpin its oil and gas industry. Xi and Putin aim to double bilateral trade to $200 billion by 2024, largely in natural resources.

But an increased focus on China comes with risks for Russia. Because much of Russia's exports are commodities like crude oil, gas and logs, experts say the country could find itself in a subordinate position to China economically. Russia struggled in price negotiations against China on natural gas exports, and an economic dependence on the Asian superpower could force Moscow to eventually compromise politically as well.

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