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1 1 (April 21, 2020)

handle is hein.crs/govdabf0001 and id is 1 raw text is: ,.....r :s.eS'... .e' April 21, 2020 Power of Siberia: A Natural Gas Pipeline Brings Russia and China Closer The Power of Siberia, the first natural gas pipeline to bring Russian gas into China, began operations in December 2019. The pipeline's initial capacity, 5 billion cubic meters (BCM), would meet 1.3% of China's 2018 natural gas consumption. As the pipeline reaches its full capacity of 38 BCM by 2025, natural gas likely will be able to displace coal in China's northwest region in the long term. The Power of Siberia pipeline runs just over 1,400 miles from Russia's Chayanda natural gas field and connects to China along the border of Heilongjiang province; the pipeline will eventually extend from the Kovykta field (another 400 miles) in Siberia (see Figure 1). Congress may consider how this long-term energy arrangement between Russia and China may affect U.S. foreign policy and security. Figure I. Map of Power of Siberia Project o. . TO . CH~ ¢I ,tAi Source: Modified by CRS, Gazprom, http://www.gazprom.com/projects/power-of-siberia/. In 2014, shortly after Russia invaded Ukraine, Gazprom, Russia's national gas company, signed a $400 billion contract with China National Petroleum Corp. (CNPC) to supply 38 BCM of natural gas annually for 30 years. The project is the biggest contract in Gazprom's history. Russia and China had been talking for years about a natural gas pipeline prior to signing an agreement, but could not reach an agreement primarily on price. The pressure of western sanctions on Russia, according to some analysts, contributed to Moscow seeking to open a new market for its natural gas and show the west they had other markets for natural gas exports. According to Bloomberg, Russian officials are reporting the price for the gas at a base of about $360 per thousand cubic meters, similar to the price paid by In~noya;k. Q Germany, Gazprom's biggest and most important customer. The pipeline runs almost solely through Russian territory, resulting in Gazprom agreeing to finance the vast majority of the project. ch~n~a~s mark*k For China, the pipeline helps diversify its energy supply. Initial volumes from Russia via the pipeline will be small relative to China's gas consumption, which has almost tripled over the last decade (to 283 BCM in 2018). China produces about two-thirds of its gas needs domestically. In 2018, China imported 121 BCM of natural gas, with 60% coming by pipeline and 40% as liquefied natural gas (LNG). Of China's pipeline gas imports, 70% came from Turkmenistan. China also received gas by pipeline from Kazakhstan, Uzbekistan, and Burma. China has multiple LNG import terminals along its coast to access different suppliers. In 2018, approximately 44% of China's LNG imports were from Australia. The United States ranked 6th as an LNG supplier. China imported 1.3 BCM of LNG from Russia. The Power of Siberia pipeline project finally progressed when, according to press reports, China offered Russia an alternative market to Western Europe for its gas in the context of sanctions and Russia capitulated on the price of gas giving it a similar price to its most important customer, Germany. Now that the pipeline is operational China has added another significant source of natural gas supplies. The opening of the pipeline also gives China another option as its demand grows for new supplies. Russia is the world's largest exporter of natural gas, primarily by pipeline. Russia continues to dominate the European gas market, but growing demand from Asia and geopolitical risks in the west generated new interest in building natural gas export infrastructure to China. Almost 80% of natural gas imports to Asia come by ship as LNG, not by pipeline. This, in part, is because most countries in the region, including China, are not connected by pipeline. Although in Russia's east, the Power of Siberia should be viewed alongside other major Russian gas pipeline projects, including Nord Stream 2 and TurkStream. The Power of Siberia is mainly about customer diversification for Russia, but similar to the other projects it is also about control of its natural gas, not relying on transit countries, and locking in long-term partners. The opening up of Russia's eastern regions to gas exports may help it mitigate the risks to its western exports. Russia has gas fields in the east, closer to China than Europe, which it can now better exploit. The g ,, 'gmm ppmmp mgmommoN, 10N MI'm

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