Gas Deal: Why China keeps pulling the rug on Vladimir Putin’s pipeline

One hard lesson of the past few years, however, has been that the importance of perceived energy security is higher than it has been in decades. That’s not good news for Power of Siberia 2, which would roughly double the scale of Russia’s gas pipeline exports to China and give it more than half of the country’s import market — a similar level of dominance to the one it enjoyed in Europe in 2021.

There’s better ways to solve this problem, and China is enthusiastically embracing them. In contrast to Beijing’s reticence about the proposed Russian pipeline, in September it announced the start of construction of a 30 bcm pipe to Turkmenistan, an often unreliable supplier that’s nonetheless easier to push around than Moscow.

Shipped gas is even more attractive since — as Europe found over the past year — it allows gas importers to be highly flexible in their supply relationships, in contrast to the fixed connections necessitated by a pipeline. Since 2021, China has been signing contracts for LNG at breakneck speed. The International Energy Agency believes its existing agreements will leave China oversupplied out to 2030, with some 45 bcm of its import contracts likely to end up diverted to other markets.

Meanwhile, domestic gas output has more than doubled since Xi came to power in 2012 and state-owned oil giant PetroChina Co. has been transforming itself into a gas producer, with methane making up more than half of its oil-equivalent barrels since 2020.

Behind all that is a shift in China’s demand picture. Gas consumption grew by about 12 percent a year in the 2010s, but will rise by just 2 percent annually in the 2020s, according to the IEA. The flip side of China’s troubling expansion of coal-generation capacity is that the sort of large-scale shift from coal to gas generation seen in the UK and US in the 2010s isn’t going to happen there. Instead it will be solid fuel that works as a backup for renewables, which will increasingly become the backbone of the local grid.

Power generation from gas will barely increase through 2030, according to BP Plc. Rising use of heat pumps — China has a 40 percent share of global manufacturing — will take the wind out of a shift from coal to gas domestic boilers seen over the past decade, as households switch directly to electricity instead. Only in industry is consumption likely to rise rapidly, but that will be amply covered by existing contracts.

The effect of that in climate terms may be better than you might initially think. Carbon emissions from gas power plants are about half those from coal, but this advantage is sharply reduced when you factor in methane leaks and burning off of surplus gas in the field and pipelines. Russia does more flaring than any other nation, and satellite monitoring suggests its gas network is unusually leaky.

As Europe’s experience has shown, it can be wrenching for an industrial sector hooked on gas to break the habit — but China hasn’t really reached that point yet, and probably never will. Instead, its future will be one of widespread electrification — and with renewables expansion continuing at a headlong pace, that means coal’s future is limited as well. Moscow has few alternatives to a future as China’s resource colony. Beijing, to Putin’s chagrin, has plenty.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. Views are personal, and do not represent the stand of this publication.

Credit: Bloomberg