Russia and China's gas alliance is a bluff. Will Washington call it?

Copyright © HT Digital Streams Limit all rights reserved. A general view of the liquid natural gas plant operating by Sakhalin Energy at Prigorodnoye on Pacific Island Sakhalin, Russia. (File Photo: Reuters) Summary The plan is straight out of the Cold War Playbook, writes Leslie Palti-Guzman in a guest commentary. About the author: Leslie Palti-Guzman is the founder of Energy Vista, a strategic advisory firm. She hosts the Energy Vista Podcast and is a non-resident partner at the Center for International Studies and at New York University’s Center for Global Affairs. If their recent memorandum about Power of Siberia 2 is realized, Russia and China will one day be connected via a large gas pipeline that runs from the Arctic and across Mongolia. Details of the agreement remain dark. Prices will be loaded. Beijing is a merciless buyer, Moscow is a desperate seller, and a signed memorandum is not a steel pipeline. Yet it indicates a new stage of war over energy dominance, market share and leverage in global trade. Since its invasion of Ukraine, Russia has lost a significant land in the oil and gas market in Europe, once the most profitable. Russia’s pipeline gas flow to the European Union dropped from 140 billion cubic meters in 2021 to less than 27 BCM in 2024, and it is expected only about 16 BCM in 2025, mostly via the Turkstream pipeline. Europe has turned to liquid natural gas, mainly from the US, and has implemented other strategies for softening demand mitigation. In 2024, the US was 18% of global gas trading movements – including pipeline and LNG – up to 13% for Russia, 11% for Qatar, 11% for Norway and 9% for Australia. As Washington lifted its year-long break at LNG output approvals in January, US exporters have three new projects. Additional projects are already under construction. US LNG export capacity has now been almost doubled by the end of the decade. From the perspective of Moscow, the risk of China traditionally engaging its largest single buyer of commodities-can involve long-term contracts with these new US LNG projects, which further strengthen America’s export momentum. The announcements of the pipeline expansion unveiled by Russia and China will particularly 60 BCM per year of potential new capacity in a new power of Siberia-2-line, the expansion of the existing power of Siberia-1 and the increase in the Far East. This reflects what the US LNG projects have already secured by FIDs this year, about 47 BCM per year. The timing of the agreement is deliberate. Russia and China currently had to show a united front against the US. Both countries are experiencing difficult negotiations with Washington: China on rates and Russia on the possible conditions to end its war in Ukraine. For Beijing, the pipeline announcements can also give it leverage in its negotiations with other oil and gas exporters. China deliberately predicted both an expansion of domestic gas production and the growth of the demand for gas demand, indicating to suppliers that it has options. For the time being, China remains the world’s largest gas importer. But it will have to secure his offer at an affordable price if he wants to win the AI ​​race against the US – not to mention his other industrial competitions. Check the pipeline bluff. By entertaining massive Russian supplies, China is negotiating leverage in parallel discussions with us, Qatari and other LNG providers. The optics of a potential 100 BCM per year pipeline pillow China’s bargaining position – even if Beijing in practice prefers diversification and optionality. In addition, China has already begun experimenting with the sale of loads, and the materialization of such a pipeline would accelerate its positioning as a possible LNG swing supplier, especially if China ends up to check volumes outside its domestic demand. Instead of being a pure demand center, China can increasingly affect the global balance and therefore prices, which compete directly with trading houses and executive countries. For Russia, talking from its guest has returned to Europe – an idea that recently flowed into some policy and market circles – was considered an attempt to test whether the Russia of the West and the West can be distanced. By expressing an eastern pivot, Moscow may be able to turn off the option and demonstrate loyalty to Beijing. This is not a completely new development: China and Russia have increased their trade in illegal oil and gas over the past two years, including three loads of the approved Arctic LNG-2 project, at the expense of Western interests. Russia cannot match the de facto spheres of the US and Qatari in the global LNG market. But it may try to include demand through pipelines, ensuring the withdrawal of rent. The time will see if this pipeline project is just another scare tactic that is Russia’s Cold War playbook. Soviet propaganda has often produced the incidence of threatening breakthroughs to gain psychological advantage over its competitors. Months before Yuri Gagarin’s historic space flight of 1961, for example, the government began to spread rumors of a cosmonaut launch. The new pipeline announcements serve a similar function. It is strategic bluff to upset competitors, freeze investment decisions elsewhere and project a brilliance of inevitability. The question is whether Western policymakers and investors will read these signals as a bluff or as real restrictions on market opportunities. Guest commentary like this was written by writers outside the Barron’s news room. This reflects the perspective and opinions of the authors. Submit feedback and comments to [email protected]. Catch all the business news, market news, news reports and latest news updates on Live Mint. 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