Russia has used its geographical proximity to China and Natural Resources to emerge as an indispensable partner in Beijing’s ambitious Belt & Road Initiative (BRI).
The Power of Siberia Gas Pipeline Project is perhaps the best illustration of the potential of the Sino-Russian alliance.
Russia’s Gazprom is building a 3,000 kilometre natural gas pipeline, traversing three Russian constituent entities, namely the Irkutsk and Amur Regions and the Republic of Sakha (Yakutia) to the north east of China.
The $55 billion project is among the biggest BRI projects, according to Refinitiv data. Last December, the first phase of Power of Siberia was brought into operation and the first-ever pipeline supplies of Russian gas to China were launched, with subsequent phases under construction.
“This is a genuinely historical event not only for the global energy market but above all for us, for Russia and China,” said Russian President Vladimir Putin at the launch of the project’s first phase, according to a December 2019 Reuters report.
“This step takes Russo-Chinese strategic cooperation in energy to a qualitative new level and brings us closer to (fulfilling) the task, set together with Chinese leader Xi Jinping, of taking bilateral trade to $200 billion by 2024.”
Once fully complete, the project will export 38 billion cubic metres of gas to China annually for 30 years, generating an estimated jaw-dropping $400 billion for Moscow over the project’s lifetime, the Reuters report said. The deal will also make China the second largest Russian gas customer after Germany.
“The second phase of the project will include the construction of a section stretching for about 800 kilometres from the Kovyktinskoye field (Irkutsk Region) to the Chayandinskoye field. It is planned to bring Kovyktinskoye onstream in late 2022,” according to Gazprom. “The third stage provides for expanding gas transmission capacities between the Chayandinskoye field and Blagoveshchensk.”
Major BRI Recipient
Russia is the largest recipient of BRI investments in oil and gas among the member countries, according to Refinitiv data. The $123.87 billion being invested is four more than in Saudi Arabia, which is the second largest recipient at $26.42 billion.
For China, Russia is vital partner in its quest to connect the Eurasian Land Bridge to other parts of its fabled Silk Road, which Beijing is trying to recreate.
BRI, a $4 trillion series of mega projects, comprises a Silk Road Economic Belt – a trans-continental passage connecting China with Asian countries, Russia and Europe by land – and a 21st century Maritime Silk Road, connecting China’s coastal regions with south east and south Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe, via rail, road, sea, and developing vital infrastructure along the way.
For now, China is predominantly eyeing Russia’s oil and gas reserves, given its status as the largest producer in the world with expected output of 11.52 million barrels per day on average this year, according to the Organisation of the Petroleum Exporting Countries.
Russia accounted for 15.3 percent of all Chinese oil imports, generating revenues of $36.5 billion, second only to Saudi Arabia which accounted for 16.8 percent of China’s total oil imports.
The former Soviet Union has 80 billion barrels of oil reserves and is a major oil supplier to Europe, but for political and economic reasons is looking to diversify its export base – and China presents a formidable opportunity.
But it’s Russia’s natural gas reserves – largest in the world 1,688 trillion cubic feet, according to the U.S. Department of Energy, that’s the biggest prize for Beijing, eager to secure ready and easily accessible, land-based supplies.
“Most of these (natural gas) reserves are located in large natural gas fields in West Siberia. Five of Gazprom’s largest operating fields (Yamburg, Urengoy, Medvezhye, Zapolyarnoye, and Bovanenkovo), all of which are in the Yamal-Nenets region of West Siberia – together account for about one-third of Russia’s total natural gas reserves,” according to the U.S. Department of Energy.
Last October, a China National Chemical Engineering (Group) Co. Ltd. (CNCEC) subsidiary signed a deal with Baltic Chemical Complex of Russia, a unit of RusGazDobycha, to build a natural gas processing and chemical plant in a small town near Russia’s shoreline of the Gulf of Finland. The $13.3 billion project would be built in five years.
Given the potential, it’s no surprise that Russia accounts for 70 percent of the top 10 oil and gas projects being developed as part of BRI (according to BRI Data), and underscores the country’s importance in meeting significant portions of China’s oil and gas needs.
“Energy cooperation has reached a strategic level, including in the construction of trans-border oil and gas pipelines, peaceful uses of atomic energy, production of liquefied natural gas, and exports of Russian coal and electricity,” said Sergey Lavrov, Foreign Minister of Russia.
A number of other projects in other sectors are also under way. The two countries are eyeing collaboration in the areas of high-tech, civil aviation and space and agriculture products.
The $32.4 billion Eurasia High Speed Railway Project, connecting Moscow to Kazan via a 772-kilometre line, is also being proposed.
Meanwhile, a $9 billion Silk Road-style 2,000-kilometre motorway across Russia connecting Shanghai and Hamburg in Germany, was also approved last year. It could emerge as a vital BRI link connecting China to Russia, Central Asia and Europe.
Russia is also pushing its 5-member Eurasian Economic Union to forge closer ties with China’s BRI and lay the foundation for a new Eurasian geopolitical framework. Discussions are under way with Beijing to develop more formal ties to create a European Union rival, which will be able to attract other neighbouring countries.
“The EAEU and One Belt, One Road are starting to effectively complement one another,” said Russian Foreign Minister Sergei Lavrov last year. “Their further harmonisation will lay the foundation for a new Eurasian geopolitical framework, which will be open to every state and integration entity without exception. This is the goal of the known initiative of President Vladimir Putin concerning the formation of a greater Eurasia partnership,” Lavrov said.
“We believe that the successful implementation of this mega-project based on the ‘integrating the integrations’ concept will not just ensure sustainable growth of national economies, including the ones of our countries, but will also tangibly strengthen security, stability, and predictability on the vast space between the Atlantic and Pacific oceans,” Lavrov said.
Mining is also emerging as a major area of collaboration, with five of the top 10 BRI mining projects located in Russia, Refinitiv data shows. This include the $1.8 billion Coal Mining Complex on the Mezhegey Deposit in Russia .
The project will be implemented jointly by the Evraz Group, who owns the right of exploration and mining of coal in the deposit and the Chinese company China Coal Energy Company.
“This project is included in the Roadmap for Coal Cooperation between Russia and China. Production capacity of the complex 7 million tonnes of coal per year,” according to Refinitiv Projects data. “The reserves of the Mezhegey coal deposit amount to 213.5 million tonnes of hard coking coal (grade Zh under Russian classification). The reserves should be enough for more than 30 years of production.”
Trade ties between the two countries’ stood at $107 billion in 2018, but they are aiming to raise that to $200 billion by 2024, state news agency Tass had reported in September 2018. For now, energy accounts for 71 percent of trade between the two nations.
Latest available data from China’s General Administration of Customs, shows trade turnover between the two countries rose 4.7 percent from January-July period of 2019 year-on-year to $61.13 billion.
“Other motivating factors as to why Russia-China trade can be expected to double are the US-China trade war, which has seen China move away from purchasing products from the United States and establish new supply chains within ASEAN and the Belt & Road Initiative Countries”. “Russia is very much part of that, and this trend is likely to continue.”
Russia is the largest recipient of BRI Investments in Oil & Gas among the Member Countries, according to Refinitiv Data.