The 2022 Russian invasion of Ukraine, beginning 24 February, has turned the Russian energy trade upside down. Meanwhile, McKinsey estimates that Chinese demand for gas will double to 526 billion cubic meters (bcm) by 2035. In this blog post I will review Sino-Russian energy in 2022 with an emphasis on developments after 24 February 2022.

I find that Sino-Russian energy deal making has remained quiet since the 2022 Russian invasion of Ukraine, despite Russian government rhetoric signalling that bilateral trade will double from $100 billion to $200 billion annually by 2024. Chinese and Russian firms announced a string of significant oil and gas contracts in early February, but the February agreements do not involve gas and oil quantities large enough to substitute for Euro-Russian energy trade. The most significant investment, the Power of Siberia 2 gas pipeline, is still in negotiations and there have been no developments on this front since the Ukraine War.

There are multiple reasons for momentary Sino-Russian quietude. First, it may simply be too early to detect a marked shift in economic ties following the Ukraine War, because gas and oil investments are projects requiring large capital expenditure and time for negotiations and execution. Second, Chinese leaders may not yet know how they would like to proceed with Russian economic relations, including energy imports. Third, Chinese leaders may desire to pursue a middle-ground path towards Russian economic relations that largely follows pre-war ties, rather than cutting off Russia or forming closer bonds. Fourth, Chinese negotiators may be proceeding at an accelerated pace to secure additional Russian gas and oil supplies, but with an intention to keep such negotiations private for the moment to avoid international backlash.

Nevertheless, Moscow needs to find substitute buyers for exports previously headed to Europe, while China is a neighbouring country with the demand capacity to absorb Russian supply. From Beijing’s perspective, Russian energy imports carry the strategic advantage of overland (pipeline) delivery and potential ocean shipping through the emerging Northern Sea Route, which would decrease Chinese reliance on energy imports that currently transit a southern route vulnerable to disruption.

Consequently, while the muted pace of Sino-Russian energy deal making since the Ukraine War would not alone indicate an acceleration of energy trade, the above-mentioned factors will drive both Moscow and Beijing to increase bilateral trade in gas and oil. Nevertheless, it will be many years before sufficiently large pipelines become operational to deliver Russian energy output to China. In the meantime, shipping may partially compensate to conduct Sino-Russian energy trade.

Sino-Russian Energy Trade

Russia is the world’s third-largest oil producer and second-largest gas producer, while China is the world’s largest importer of both oil and gas. Chinese demand can absorb Russian supply.  Russian exports to China are predominantly crude oil (48.3 percent alone) followed by an array of other energy products. Chinese exports to Russia are much more diversified but comprise a minor portion of Chinese global goods exports, reflecting the vast difference in the size of the two economies. From Beijing’s perspective, China imports 15.5 percent of its crude oil from Russia, with much of it transiting pipelines rather than shipping. Since the rest of China’s oil imports pass through the vulnerable Malacca Strait, Chinese access to Russian oil is strategically important to diversify import routes.

But shifting the destination of Russia’s oil and natural gas exports is easier said than done. The location of reserves and the method of delivery complicates the feasibility of substituting customers, particularly when the producer’s extraction sites are spread across a vast landmass the size of Russia. Sino-Russian pipeline infrastructure is vastly inferior in capacity compared to Euro-Russian pipeline infrastructure. Moreover, the most productive Russian basins are in Western Siberia with pipelines flowing towards Europe with limited or non-existent linkage to the Sino-Russian network.