Given the delicate situation in Ukraine and the US imposition of sanctions on Russia, followed by the European Union, it seems important to assess how much Russia can rely on China as a trading partner.
Although trade between the EU and Russia has lost some steam since President Vladimir Putin’s “Pivot to the East” announced during his 2021 campaign and the sanctions imposed in 2014 because of Russia’s takeover of Crimea, the EU is still Russia’s largest trading partner, actually several times bigger than China.
The Russia-China strategic agreement struck in Beijing during the recent Winter Olympics can probably help relieve Russia of some of the pressure from sanctions. A good example has already happened with China’s approval of crop imports from Russia.
However, that is really a drop in the ocean compared with European imports of gas. The question, thus, is how easy it would be for Russia to shift gas exports from Europe to China.
Generally, Russia’s natural-gas pivot eastward could see European buyers competing with China as new pipeline infrastructure was agreed in Beijing (Power of Siberia 2) linking legacy gas fields to new export markets.
However, by no means is this feasible immediately, as current gas exports from Russia to China via the existing Power of Siberia 1 pipeline are fed by dedicated gas fields in eastern Siberia. The current reality is that as much as 83% of Gazprom’s total gas supply landed in Europe as of 2020.
If we want to focus on the medium run, when Power of Siberia II becomes a reality, global gas markets may actually look very different from today. In fact, gas prices are expected to remain high until 2024 but not thereafter. Large additional supplies of liquefied natural gas (LNG) will be added in 2025 (most notably Qatar’s giant North Field expansion) and loosen the market significantly.
In addition, decarbonization in the European Union will be well under way, with a smaller share of gas in the energy basket. As such, Russia’s market power will be significantly diminished. This basically means that Russia’s pivot toward China to mitigate its problems with the West is not a panacea.
European imports of gas are too large and cannot be immediately substituted by China, especially as regards the linkage of Russia’s pipelines. Furthermore, when it finally becomes a reality, and with additional investment that Russia or China will need to bear, the global LNG supply will be much larger and demand for gas will not, at least not in the EU, thanks to its decarbonization efforts.
It seems doubtful that Russia’s economic future hinges on becoming a large exporter of gas and grain only to China, with the related further increase in economic dependence from China. It does not really sound like a plan.
Alicia Garcia Herrero is chief economist for Asia-Pacific at Natixis and senior research fellow at Bruegel. Follow her on Twitter @Aligarciaherrer