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The Perfect Storm Bringing China And Russia Together

The Perfect Storm Bringing China And Russia Together

Nat Gas

During the Cold War, China and the Soviet Union regarded one another as strategic adversaries. Relations between Beijing and Moscow, however, have significantly improved over the years. Besides political alignment, the countries have complementary economies; China has an insatiable appetite for the raw materials which Russia has in abundance and Beijing has the financial strength to protect Moscow against the sanctions related to its annexation of Crimea.

Bilateral trade, as a consequence, has increased dramatically over the years. At the end of 2017, it stood at $80 billion, an increase of 30 percent year-on-year, with an aim to reach $200 billion by 2024. Much of this growth will need to come from energy trade, of which natural gas will likely make up a large part. An example of this natural gas growth is the Power of Siberia pipeline – which is currently nearing completion – and the Altay pipeline project which looks set to follow.

China’s booming demand for energy

The transformation of rural China a couple of decades ago into a global economic powerhouse has been admired across the globe. Even during the financial crisis of 2008, China served as a stabilizing force amid the turmoil. The Asian country’s expanding economy requires ever-larger volumes of energy to power homes and factories. Beijing’s adoption of more stringent rules to counter air pollution has created an energy revolution due to the coal-to-gas switch. This has had serious consequences for the global gas market.

Until recently, the LNG market was facing an oversupply. Growing demand in China due to its new rules on air pollution has absorbed much of the glut. According to analysts from Sanford C. Bernstein & Co., new supplies of LNG are “being easily mopped up by rampant market growth”. Political developments, however, have somewhat shifted Beijing’s focus from LNG to more pipeline gas from Russia. This has come at the right moment for Moscow as relations with its biggest customer, the EU, have deteriorated.

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