This article originally appeared at Asia Times
Since the beginning of the Ukraine-Russia crisis, the Russian media has been arguing that Russia would shift its energy exports away from Europe to the East, in particular to China.
There are plenty of reasons why Moscow is pushing this narrative. Over the past years, Russia’s dominant position in the European energy market has suffered several severe blows: new natural gas interconnectors, better storage facilities and new import terminals for Liquefied Natural Gas (LNG) have made the Eastern half of the continent less dependent on Russian energy supplies.
At the same time, the EU has initiated antitrust cases against Gazprom, supported Ukraine through the ‘reverse flow’ of gas, and, after Russia’s illegal annexation of Crimea, imposed sanctions.
Against this backdrop, it is hardly surprising that a frustrated Russia would be looking for less reticent customers elsewhere.
Alas, this ‘energy pivot’ is not likely to happen as advertised. While several major energy projects are currently being discussed between Russia and China, a closer look reveals that they will not constitute real alternatives but at best supplements to Russia’s European energy market.
For a number of reasons, Europe will remain Russia’s primary destination for energy exports, in particular natural gas.
The flagship project of the emerging energy cooperation between Russia-China, the Power of Siberia gas pipeline, would provide China with 38 billion cubic metres (bcm) of gas. Yet even if the project were to deliver 61 bcm, it still pales in comparison with 146 bcm that Gazprom exported to Europe in 2014.
Moreover, the gas fields that will feed the Power of Siberia pipeline are not located in Western but Eastern Siberia, thousands of kilometres away from the fields that feed the European gas pipelines. In other words, the Eastern gas fields are too remote to be commercially viable for exports to the European market in the first place.
Finally, China is not yet prepared to pay the gas price that some European countries are paying to Gazprom. In contrast to the Power of Siberia pipeline, the projected Altai pipeline to China would be fed by the Western Siberia fields, the same that provides gas to Europe. This project originated a decade ago but remained in limbo until it was surprisingly revived last year.
However, for several reasons, neither Russia nor China appears keen to actually start implementing the project.
First, the Altai pipeline would arrive from Russia at China’s largely deserted northwest, yet it is in the industrialized southeast where the gas is really needed. This would require China to build additional pipelines across the country.
Second, Russian gas in the eastern part of China competes with supplies from Turkmenistan, which have yet to reach their full potential. This Turkmenistan-option will allow China to negotiate a Russian price that would be lower than the European price level.
A third element of the Russian ‘energy pivot’ – Russian-Chinese cooperation on oil – should not raise much concern in Europe, since oil is a globally traded commodity.
Recent statements in the Russian media that Russia had become the largest supplier of oil to China, thus overtaking Saudi Arabia, are less spectacular than they may seem: they only mean that China is importing less oil from other suppliers, who will now compete for the European market.
Other elements of the emerging Russia-China energy relationship – cooperation on LNG and the exploration of Arctic energy resources – depend largely, and paradoxically, on Russia’s cooperation with Western industry.
The development of Russia’s LNG export capability remains heavily dependent on its access to Western technologies, and the same goes for the energy exploration in the Arctic.
Before China can be the beneficiary of Russian LNG exports and tap into Arctic oil and gas resources, Russia needs Western technologies and investment, which are currently to a large extent subject to EU-US sanctions.
Even if Russia were able to access the required technologies, neither oil nor LNG produced in the Arctic would be able by themselves to solidify the Russia-China energy relationship: Both commodities can be traded on the global market, and it appears unlikely that China would limit itself to buying the rather expensive energy extracted in the Arctic without considering alternative suppliers.
In sum, Russia’s ‘energy pivot’ to China should not cause European energy consumers sleepless nights. Due to a series of infrastructure projects, European countries have increasingly more alternatives to Russian gas and oil and thus enjoy a strong negotiating position vis-à-vis Russia.
No matter how much this may frustrate Moscow, stable energy revenues from Europe remain of critical importance to the Russian state budget, particularly in the current low oil price environment.
Accordingly, Russia continues to make every effort to strengthen its energy influence in Europe, from seeking bilateral deals with European energy companies to intensive lobbying. A real ‘pivot’ looks different.
via Marshall Horn, CFTC Why Europe Will Remain Russia's Primary Gas Market
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