WSJ: The conflict between Israel and Iran has revived Chinaʼs interest in Russian gas
The conflict between Israel and Iran has revived Chinese leadersʼ interest in a new pipeline capable of transporting Russian natural gas to China. This could give a boost to the Power of Siberia 2 project, which has been repeatedly postponed.
This
is reported by The Wall Street Journal, citing sources in the Chinese government.
China imports about 30% of its gas in the form of liquefied natural gas from Qatar and the United Arab Emirates through the Strait of Hormuz, a narrow sea passage that Iran has threatened to close, according to consulting firm Rystad Energy. Meanwhile, China’s independent refineries have become hooked on cheap Iranian oil in recent years.
The likelihood of a complete closure of the strait is low due to Iranʼs dependence on it and the potential for a military response from the United States, but the recent conflict has highlighted the implications of such a move. Even with a ceasefire agreement, the latest conflict has prompted Beijing to seek alternatives, analysts say.
Russian state media has linked tensions in the Middle East to the revival of the Power of Siberia 2 project. Russia is expected to try to put the project on the agenda when Putin visits Chinese leader Xi Jinping in China in September, analysts say.
Power of Siberia 2, an extension of the Power of Siberia gas pipeline that opened in 2019, has long been more relevant to Moscow than to Beijing. Russia lost its largest energy market when much of its gas exports to Europe were cut off after the invasion of Ukraine.
For Beijing, gas supplies from the Middle East and elsewhere meant that the new project with Russia was much less important. The new pipeline project has also been mired in disagreements over pricing and ownership terms, as well as China’s concerns about becoming overly dependent on Russia for energy supplies.
According to people close to Beijing’s decision-making process, one of the official reasons they gave Russia was that China limits its oil and gas imports from a single country to 20%. As a result, negotiations dragged on for years, despite Moscow’s repeated claims that a deal was imminent.
But the recent conflict in the Middle East has given Beijing reason to reconsider the reliability of the oil and natural gas it receives from the region, sources say, even as a fragile ceasefire has taken hold between Israel and Iran.
In addition to the current turmoil in the Persian Gulf, the trade war between the United States and China in recent months has halted American liquefied natural gas exports to China, halting years of growth in energy trade between the two countries.
In the long term, as China seeks to achieve its green energy goals, Beijing wants to expand natural gas’s role as a so-called bridge fuel between the hydrocarbon and post-hydrocarbon eras, analysts say.
If a deal can be reached on the pipeline, analysts estimate it will take at least five years to build. Other significant obstacles remain, including disagreements over gas pricing and the significant investment required for large-scale construction. Another stumbling block is China’s demand for an ownership stake in the project, a concession Russia is unwilling to make.
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