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Russia's Gas Supplies To China and the EU


Europe and China are the biggest markets for hydrocarbons from Gazprom, the state-owned gas monopoly in Russia. The gas supplier is looking to finalise deals on both sides to build and operate new pipelines but their attitudes to the respective sides could be argued to be different. Arguably the Kremlin may be using the current energy crisis in Europe to weaken the region.

Europe is currently desperate for more gas supplies as prices have been soaring. Wholesale gas prices are now five times as high as last year. This is due to Russian exports still being well below pre-pandemic levels which have led to shortages of energy fuel in the region which has inflated prices. Furthermore, the suspension of the Nord Stream 2 gas pipeline by Germany, which Gazprom was wishing to operate to EU states, has raised further concerns of the supplies. The announcement from Berlin caused a 15% rise in price. There are fears that a rise in demand for energy from a colder winter could lead to supplies being cut to industries. This poses serious issues for European states in the following months.


Some analysts argue that the situation is being exacerbated by the Kremlin by limiting gas exports in order to pressure the European Union and Germany to approve the Nord Stream 2 operation quicker. The EU imports a third of their gas from Russia and it is a major source of energy in the region. Russia wants to diversify their supply routes into the EU in order to divert supplies from having to go through Ukraine. This reduces Ukraine’s transit revenue as well as Russia’s dependence on Ukraine when exporting gas. This is at the same time as there being a rise in tensions between Ukraine and Russia with the latter having increased their military build-up on the border.


Putin has denied that low exports have been in the hope to accelerate the pipeline’s approval. He states that Russia has been keeping to its contracts. In October, gas prices had dropped when Putin had suggested that Russia were going to increase supplies to the EU after filling their domestic storage. Although their storages are now full, supply has only increased to a degree and so levels are still below those in early 2020. Some consider this to be a ploy from the Kremlin the destabilise European economies. This is at the same time as there being links of Russia being behind the border crisis between Belarus and the EU. Consumers in Europe and the UK have felt the effects of the rises in energy costs with industries struggling and fearing a harsh winter due to rising costs. In the UK there was fear of a decline in certain high energy-using industries.


Russia has also been negotiating to build a new pipeline in China. Gazprom has now agreed on a new pipeline to run from Siberia to China. Russia is trying to capitalise to increase its revenue as China is looking to phase down its coal usage. Beijing is hoping to transform its coal-based economy into a decarbonised one and they believe that natural gases may be the way forward. China is also looking to increase its energy security through this deal as this will increase the country’s imports from a friendly state rather than from water patrolled by the US Navy.


Putin has looked at increasing the supply in China to increase its gas leverage in Europe. The new Power of Siberia 2 pipeline will be exporting gas from the same oilfields that are being used for exports to the EU. This poses risks to the EU’s energy security and so will help Russia when bargaining with the EU.


More exports to China may also be vital to Russia as in the following decade it is likely that the EU looks elsewhere for energy due to growing hostilities between the two sides. But this will pose a threat to Russia as they will have a sole consumer for a major export. This may lead to Russian dependence on China and so Beijing will have leverage. They may demand that Russia stop trading arms with states such as India and Vietnam which are perceived as being a threat to China.

 

Written by Florian Mihindukulasuriya Thiserage

Researched by Jonas Theaker

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