Russia is planning to raise pipeline gas deliveries to China to 38 billion cubic meters annually by 2025. What message does this trend send to western sanctions designers?
Russia learned the lesson of 2014 (the start of sanctions) better than the West, Christopher Weafer, the founding partner of Macro-Advisory Ltd, an independent macro consultancy.
While Brussels and Washington talked about energy supply risk diversification, Moscow actually did something about it with Power of Siberia 1, the ESPO pipeline and a focus on Yamal LNG.
Diversification of the customer base has been a big part of Russia’s energy strategy since 2014 while Europe is only now scrambling to diversify supply. Europe has long been Russia’s largest customer of most energy commodities.
However, the EU started to phase out purchases of Russian pipeline gas last year in response to Moscow’s special military operation to demilitarize and de-Nazify Ukraine which kicked off on February 24, 2022.
The European Commission’s figures for January-November 2022 indicated that Russian pipeline gas imports in the EU fell by 69 bcm year-on-year. The EC concluded that even allowing for increased LNG imports, total gas imports from Russia fell by 64 bcm.
However, on January 16, Russian Deputy Prime Minister Alexander Novak announced that the nation had increased pipeline gas supplies to the People’s Republic of China by 49% through the Power of Siberia to 15.5 bcm.
It is planned that the gas supplies to China will increase to 38 bcm annually by 2025. The 3,000 km gas pipeline – the largest gas transportation system in the East of Russia – was launched on December 2, 2019.
Moscow is gradually stepping up its gas supplies through the Power of Siberia in accordance with the Russo-China energy deal which was signed long before the special military operation.
While Russia’s oil and gas industry have demonstrated resilience in response to challenges posed by the West’s sanctions spree, not everything is rosy on the European energy market.
Europe was forced to reduce its consumption of gas by 50-60 billion cubic meters, mostly by the industrial sector, he noted. As a result, European businesses shut down or cut production.
Many of them are considering moving their production facilities either to the USA or elsewhere in Eurasia where energy costs are lower and generally stable.
While the Old Continent managed to amass its gas stocks for the winter of 2022-2023 and avert the energy crisis, it bought huge amounts of liquefied natural gas (LNG) at top dollar. This eventually backfired on Europe’s competitiveness as production costs have gone up.
The forthcoming ban on Russian petroleum products in Europe which is due to come into force in February 2023 is likely to complicate matters even further, admit international oil experts.
Even though Europe’s reliance on Russia’s oil products decreased by a whopping 50% since the beginning of Moscow’s special operation in Ukraine, Russia still remains the bloc’s largest diesel supplier.
The European bloc struggled to secure Russian diesel three months before the February ban.
Russian diesel deliveries to the Old Continent’s Amsterdam-Rotterdam-Antwerp (ARA) oil refining hub soared to 215,000 barrels per day from November 1 to 12, 2022 amounting to a 126% spike from October.
It’s still unclear who will fill Russia’s shoes in terms of petroleum products deliveries.
However, the crux of the matter is that Europe has no one to blame in the unfolding energy constraints but itself.
Sputnik / ABC Flash Point WW III Economic Blog News 2023.