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Central Asia to China Pipeline and the Power of Siberia-2
Ukraine's counteroffensive starts
The authoritative People’s Daily Chinese language foreign affairs section on Russia has been quiet since April 20th, which has often meant in recent years that Beijing is weighing different courses of action. For instance, the PD’s foreign affairs section on Russia didn’t issue any updates from November 5th, 2021 until (I think) mid-2022, although I don’t have the exact date for when the restart occurred. The authoritative PD is often a highly reliable barometer for the PRC actual policy, and its lack of updates suggest Beijing is closely awaiting the battlefield results.
China and Turkmenistan seem to be closing in on an agreement over the Central Asia to China (CACP) Line D pipeline. I’ve heard some skepticism about the stability of the planned pipeline’s route, which I’m looking into. I wrote a piece on China’s urban air pollution (very topical in DC and NYC this week, amid awful air quality index scores), which touches on Central Asian natural gas exports to China. I’ll have more analysis in a piece for The Diplomat next week.
Also regarding natural gas, a couple of friendly notes to the reporters who read this newsletter. The Russian energy minister confirmed again last October that the Power of Siberia won’t deliver its full contracted volumes until 2027. Gazprom originally agreed to deliver volumes by 2025 but is having problems with upstream production. Many articles claim that the 2025 production commitment is still in effect, but I’ve seen no evidence that Gazprom has shifted its guidance from October (it first issued the 2027 guidance in September). Finally, the CACP Line D pipeline will indeed impact Power of Siberia-2 negotiations, poses limited risks to Russian natural gas exports, and may limit the amount of financing available for Power of Siberia-2, but it will have greater market impact on potential LNG exports to southern China.
I will talk Chinese natural gas markets with anyone who will listen. Drop me a line at firstname.lastname@example.org
I don’t anticipate any CRR updates for at least the next week and a half amid professional and personal commitments. Thanks for reading.
Table of Contents:
Natural gas: Central Asia and Power of Siberia-2
Bilateral political ties
Bilateral security ties
Bilateral economic ties
Worth your time
1) Natural gas: Central Asia and Power of Siberia-2
There’s been an unexpected change for the upcoming Shanghai Cooperation Organization (SCO) summit, which India is hosting in early July. It will now be a virtual gathering, instead of in-person.
India is offering no official reason for the switch. But there’s plenty of speculation that Vladimir Putin’s fear of foreign travel is the main reason for moving the meeting online. Putin has been reluctant to leave Russia since he was indicted for war crimes by the International Criminal Court in The Hague.
A Chinese company, Goldwind, has installed the first wind turbine of what is envisioned as Central Asia’s largest wind farm in Uzbekistan’s Navoi region, according to a Ministry of Energy statement.
Iran plans to create a gas hub with the participation of Russia, Qatar and Turkmenistan, Iranian Oil Minister Javad Owji announced on Wednesday.
The hub will be established in the industrial zone in Asaluyeh, Bushehr Province, on the Iranian north coast of the Persian Gulf.
"We have the second largest gas reserves in the world, so we plan to create a gas hub in the Asaluyeh region in cooperation with Russia, Qatar and Turkmenistan," the Tasnim news agency quoted the oil minister as saying. Owji did not indicate an overall timeframe for implementing the project.
In May, Owji said that Iran and Russia were discussing the development of ten new oil and gas fields in the Islamic republic. According to him, the Iranian authorities are in talks with Gazprom. The minister estimated the value of such joint projects at $40 billion. In particular, Gazprom is considering the options for developing Iran’s Kish and North Pars fields with a subsequent project to liquefy gas for delivery to world markets.
Comment: I’m extremely skeptical this gas hub or corridor will ever materialize, but it’s worth tracking. Portions of this hub, especially regarding liquefied natural gas, will never become reality without substantial (and highly controversial) Chinese financing and technological support, particularly in liquefaction technologies and services. Also, I strongly doubt Qatar would be interested in this project, for a host of geopolitical and market factors.
Iran and Turkmenistan on Tuesday signed five documents on enhancing cooperation in different areas, the official news agency IRNA reported.
The documents were signed in Tehran in the presence of Iranian President Ebrahim Raisi and Chairman of the People's Council of Turkmenistan Gurbanguly Berdimuhamedow, said the report.
They focus on cooperation in the fields of transportation, building of international corridors, energy and electricity exchanges, agriculture, education, and investment, it said.
Berdimuhamedow said that the "friendly and brotherly" relations between Iran and Turkmenistan are age-old, while promising that Turkmenistan would work to enhance such ties.
Also on Tuesday, Iranian Oil Minister Javad Owji said Iran would soon sign a contract with Turkmenistan for importing 10 million cubic meters of gas per day, which will start before June 21.
Comment: Iran’s purchase of 10 million cubic meters of gas per day (~3.65 billion cubic meter/year) is a non-trivial amount of gas for Turkmenistan, as the Central Asian country exported 42.1 billion cubic meters/year in 2021.
The telegram channel of Kazakhstan’s sovereign wealth fund, Samruk-Kazyna, provided some detail on one of the deals, covering the construction of wind farms. A memorandum of understanding involving Samruk-Kazyna, Kazakhstan’s Ministry of Energy, the China Energy Investment Corporation CPIH and the Chinese company SANY Renewable Energy, outlines plans to manufacture windmills [wind turbines] in the Central Asian country.
Methane leaks alone from Turkmenistan’s two main fossil fuel fields caused more global heating in 2022 than the entire carbon emissions of the UK, satellite data has revealed.
It was also becoming more clear that Russia’s interest wasn’t so much supplying Kazakhstan and Uzbekistan but reaching China. A TASS report cited analysis by the Russian Energy Development Center, which contained the expectation that Gazprom “will be able to agree on the supply of up to 10 billion cubic meters of gas to Uzbekistan and Kazakhstan, of which 4-6 billion cubic meters will be transit gas for China.”
After three consecutive winters of gas shortages, Uzbekistan is working with Russia on a Russian proposal to ship gas to Uzbekistan via pipelines that once carried Uzbek gas to Russia.
Kazakhstan has faced similar gas shortages in recent winters and is also discussing gas imports from Russia.
As local demand for natural gas rose, [the city of] Beijing sourced more supplies from abroad. Pipeline natural gas imports along the Central Asia-to-China Pipeline (CACP) were particularly important. According to the Chinese National Petroleum Company, natural gas service enabled the shutdown of four thermal coal plants in 2015. The CACP’s Line C, which entered service in 2014 and has a capacity of 25 billion cubic meters (bcm) per year, undoubtedly played a role. The CACP’s A and B lines came online in 2009 and 2010, respectively, and have a combined capacity of 30 bcm per year.
Liquefied natural gas (LNG) imports also played an important role in Beijing’s clean air transformation. From 2013–2018, China opened five LNG import terminals near Beijing, with capacity just under 40 bcm. In addition, the increased adoption of natural gas in the adjacent Tianjin municipality and Hebei and Liaoning provinces have also helped reduce coal pollution in the greater Beijing area.
China is accelerating the building of a long-delayed Central Asian pipeline to source gas from Turkmenistan even as Russia pushes its own new Siberian connection, as Beijing juggles its energy security needs with diplomatic priorities.
Kazakhstan and Russia have established the route for a future gas pipeline to support shipments between the two countries and to China, Kazakhstan's energy minister said on Tuesday.
Beijing is driving a hard bargain as Moscow presses for a new Sino-Russian pipeline through Mongolia
2) Bilateral political ties
Russian President Vladimir Putin signed a decree on May 29 to abolish the Treaty on Conventional Armed Forces in Europe.
Russian President's Press Secretary Peskov said at a press conference that day that Russia's decision to abolish the Treaty on Conventional Armed Forces in Europe will not lead to direct consequences, because the relevant mechanism has existed in name only and Russia is not at fault.
The Chinese government's special representative for Eurasian affairs, Li Hui, suggested on Friday that his European counterparts should ponder why the Ukrainian conflict had developed and why Russia had launched a special military operation in Ukraine. The Chinese envoy was speaking in response to a question from a Western journalist who asked him for clarification.
"When I was in Europe, I invited my colleagues from European states to think hard about the root causes of the Ukrainian conflict," Li said at a news briefing of the China Public Diplomacy Association in Beijing following his international tour.
"They can all think hard and draw their own conclusions," Li said.
While explaining the reasons for the special military operation he referred to Russia’s arguments.
“You ask why Russia took such actions. I will answer you with one phrase, which my Russian colleagues shared with me," Li said. "They started the operation to protect the lives, property and security of the people of Donbass."
Since the escalation of the Ukraine crisis, the European Union has followed the United States in imposing an embargo or price limit on Russian natural gas and oil products, which has caused obvious backlash effects: energy supply in many European countries has become tense, inflation has intensified, and people's livelihoods have been impacted. At the same time, the United States took the opportunity to export high-priced natural gas to Europe, and American shale gas quickly occupied the European market. Europe's energy independence and even carbon neutral goals are facing new challenges.
3) Bilateral security ties
The United States is ready for arms control dialogue with Russia and China without preliminary conditions, US National Security Adviser Jake Sullivan said on Friday.
"We have stated our willingness to engage in bilateral arms control discussions with Russia and with China without preconditions," he said at an annual meeting of the Arms Control Association.
Comment: Moscow has a strong interest in bringing in Beijing into trilateral arms control discussions, but doesn’t want to advocate for that position openly, owing to its sensitive ties with the PRC. Putin mentioned strategic talks with the PRC before, at, of all places, the Russia Calling! Investment Forum in late 2021. Russia couldn’t afford a strategic arms race before the invasion of Ukraine and *really* can’t now.
Pacific Fleet forces have started practicing tasks of the operational exercise kicked off in the Sea of Japan and the Sea of Okhotsk, the Russian Defense Ministry told reporters.
The director of a top Russian science institute, arrested on suspicion of treason along with two other hypersonic missile technology experts, stands accused of betraying secrets to China, two people familiar with the case told Reuters.
Russian Memo Said War Leaves Moscow Too Reliant on Chinese Tech – Bloomberg [from April, I missed this one]
Senior Russian officials privately raised concerns some 10 months ago about the risks of becoming too dependent on Chinese technologies after sanctions by the US and the European Union shut off access to alternative suppliers.
China and Russia yesterday conducted joint air force patrols over the Sea of Japan and the East China Sea, as South Korea said it had deployed fighter jets in response to warplanes near its airspace.
Beijing and Moscow “staged the sixth joint aerial patrol in accordance with an annual military cooperation plan between China and Russia,” China’s Ministry of National Defense said in a statement.
4) Bilateral economic ties
Despite some reporting by Russian media that Huawei was scaling back some of its Russia-based operations in 2022, it appears that the company has merely reorganized its distribution networks in Russia, and Huawei products continue to be available.
Comment: This was a very good piece.
China's Harbin Guanghan Gas Turbine Co. Ltd may provide turbines for the future Arctic LNG 2 plant led by Russia's largest liquefied natural gas (LNG) producer Novatek NVTK.MM, Kommersant daily reports on Tuesday, citing market sources.
Comment: This is a big deal. Russia’s LNG sector was facing severe challenges due to the exit of Western service companies. Chinese companies may be “filling the void”
The Russian car market is dominated by Chinese brands as of last year, when only fourteen out of sixty car brands remained on the Russian market: eleven Chinese and three local. In March 2023, the creation of an Association of Chinese Automakers was announced to help systematize their entry onto the Russian market.
Resumption of supplies via the Tolyatti-Odesa pipeline, the world's longest ammonia pipeline, may be key to the renewal of the Black Sea grain export deal. The pipeline has been closed since Russia invaded Ukraine in February 2022 in what it called a "special military operation".
Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, has called on north China's Inner Mongolia Autonomous Region to adhere to its strategic position, pursue green development, and strive to write a new chapter of Chinese modernization.
Comment: Watch renewables development in Inner Mongolia (and Mongolia) very carefully.
5) Chinese economy
The net effect at the macro level is that China’s gross domestic product (GDP) has recovered in real (inflation-adjusted) terms but remains below its pre-Covid trend in nominal terms. While economists typically talk about GDP growth in real (fixed price) terms, in the real world income, revenues, profits, debts, etc. exist as nominal values. This matters for the perceptions of businesses and households, and it is particularly relevant in a heavily indebted economy such as China’s.
Although AI systems do not explode like nuclear reactors, their far-reaching potential for destruction includes everything from the development of deadly new pathogens to the hacking of critical systems such as electrical grids and oil pipelines. Due to Beijing’s lax approach toward technological hazards and its chronic mismanagement of crises, the danger of AI accidents is most severe in China. A clear-eyed assessment of these risks—and the potential for spillover well beyond China’s borders—should reshape how the AI sector considers the hazards of its work.
Comment: From March, but I found this podcast very useful.
Only the services sector 5.4% outpaced the Q1 GDP growth rate, significantly faster than agriculture and industry. The rather rapid recovery in consumption played a big role in fueling economic growth, causing some to believe that the long-awaited moment of “revenge spending” has finally arrived. A closer examination of the data, however, reveals a weaker recovery in consumption than meets the eye, with a slower rebound than forecasted.
6) Worth your time
These efforts might well fail to lead to an agreement. The odds of success are slim—and even if negotiations did produce a deal, no one would leave fully satisfied. The Korean armistice was certainly not seen as a triumph of U.S. foreign policy at the time it was signed: after all, the American public had grown accustomed to absolute victories, not bloody wars without clear resolution. But in the nearly 70 years since, there has not been another outbreak of war on the peninsula. Meanwhile, South Korea emerged from the devastation of the 1950s to become an economic powerhouse and eventually a thriving democracy. A postwar Ukraine that is similarly prosperous and democratic with a strong Western commitment to its security would represent a genuine strategic victory.
A spat between Wagner's Prigozhin and Chechnya's Kadyrov provides a good opportunity to look at the role of the Chechens in the Ukraine War - or, rather, just how small a role they are playing. Why is that? Because the war is a microcosm of the Putin system in so many ways, and in that system Kadyrov has managed to create a comfortable place in which he loudly performs loyalty while actually exploiting Moscow as far as he can.
How to Read Xi Jinping – A Debate in Foreign Affairs between John Culver of The Atlantic Council, John Pomfret, Wapo’s former Beijing Bureau Chief, and Matt Pottinger, Chair of the China program at FDD
[M]ore is needed to create certainty about the West’s staying power and disabuse Putin of the notion that time is on his side. Legally binding commitments from Ukraine’s partners, especially the United States, would go a long way toward shattering Putin’s war optimism and forcing him to reckon with the fact that Ukraine will never belong to Russia.
Comment: I agree with much of the article’s analysis, but it doesn’t grapple with the totality of the complex threats facing global constitutional democracy, as it’s unclear if the US will remain committed to *NATO*, let alone Ukraine, beginning in early 2025. Moreover, even if the United States remains a democracy, it will increasingly need to focus resources and attention on Taiwan and other Indo-Pacific matters. Europe needs to be prepared to ultimately take over leadership on European security issues, including backstopping Ukrainian sovereignty.
To be clear, the US and Europe absolutely *should* issue binding commitments to Ukraine, and the US *should* continue to spearhead efforts to support Ukraine, for an intermediate period of time, but democracies need to be preparing, now, for a variety of contingencies.
Joe Webster is a senior fellow at the Atlantic Council and editor of the China-Russia Report. This article represents his own personal opinion.
The China-Russia Report is an independent, nonpartisan newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.