Richard North, 28/09/2021  

As far as this blog goes, Brexit has been an all-absorbing issue for many years but, there has been an opportunity cost. Many of the subjects I used to write about routinely have been put on hold while I focused on the main event.

One of those subjects was energy – particularly electricity generation - which I covered in some considerable depth up to about 2014, when I was writing this sort of thing. Only now, as readers may have noted, have I returned to the subject and I am now playing catch-up, reading up on some of the recent developments which, at the time, barely (if at all) registered.

One thing of some importance that I picked up in my peregrinations was this, published seven years ago in May 2014, telling us that Russia had signed a 30-year deal worth $400 billion to deliver gas to China.

The contract to provide 38 billion cubic metres of gas each year was signed by the state-owned gas companies Gazprom and CNPC (China National Petroleum Corporation) in the presence of the countries' leaders, Vladimir Putin and Xi Jinping, at the end of Putin's two-day visit to Beijing.

A new 4,000km (2,500 miles) pipeline, to be known as the Power of Siberia, was to be built from the Chayanda and Kovykta gas fields in the depths of eastern Siberia. This "colossal and costly undertaking" would link into the Chinese network, with Russia investing $55 billion, with China paying at least $20 billion.

Perspicaciously, Aled Jones, director of the Global Sustainability Institute at Anglia Ruskin University, warned that the Britain had the equivalent of only three years of North Sea gas left on the basis of current consumption and without the use of imports.

"Russia's new pipeline to China", he said, "will increase competition for natural gas from 2018 and will most likely increase the cost we pay for natural gas here in the EU". He added: "It will certainly increase the pressure on European countries to find alternative gas supplies".

It took until December 2019 before it was announced that Russia had launched its pipeline to China, with the Financial Times reporting that the "Power of Siberia" symbolised "Putin’s pivot to the east". The pipeline, the paper said, will allow Gazprom significantly to increase gas exports.

As an indicator of how much the world has changed in only a few years, it added that this increase came "amid declining demand and gas prices in its traditional export markets of Europe and Turkey, which buy on average about 200 billion cubic metres of gas a year".

A year later, and the China link was expanding, as Reuters informed us that, "China launches 1,100-km section of China-Russia East gas pipeline". Operations, it said, have started on the middle portion of the China-Russia East natural gas pipeline, allowing natural gas from the Power of Siberia system in Russia to be transmitted to the smog-prone Beijing-Tianjin-Hebei region in northern China.

The northern part of the China-Russia East gas pipeline had started operations in December 2019 and had transmitted nearly 4 billion cubic metres (bcm) natural gas. China had started construction on the southern portion of the pipeline in July, extending the route to Shanghai in eastern China. Volumes of Russian gas transported via the pipeline, we were then told, could reach 38 bcm per annum once the line is completed by 2025.

In April of this year, it then became clear that China was very much intending to increase its purchases. The Chinese economy, we were told, largely needs an increase in natural gas supplies from Russia.

This came from chairman of the board of directors of Gazprom, Viktor Zubkov, who said that: "Consumption on the Chinese gas market increases every two years by the volume comparable with the whole export capacity of the Power of Siberia, which totals 38 bcm per year".

Consequently, he added, "we are confident that China needs additional gas deliveries from Russia, and Gazprom is ready to provide them". Even in 2020, despite the coronavirus pandemic, China's gas consumption had continued to grow, gaining more than 20 bcm.

Furthermore, this was not to be the end of it. Previously, in the January, it had been reported that Russia was set to increase natural gas exports to China over the next five years as additional supply and more infrastructures came on line.

Based on Russia's natural gas development plan out to 2035, its Energy Ministry planned to raise gas exports to China from the 38 bcm expected this year to 43 bcm per annum by 2025 - an increase of 13 percent. The volume would be further expanded to 46.5 bcm by 2035.

Early this month, this trend was confirmed when we learned that deliveries of pipeline gas from Russia to China in January-August 2021 had jumped 2.7 times year on year to 4.73 million tons. According to Gazprom, China's gas demand had "stunning" growth potential. In the first eight months of the year, China had spent some $837.32 million on Russian gas - a 98.94 percent increase compared to the corresponding period last year.

Bringing us right up to date, yesterday brought us some interesting news from India, with Bloomberg reporting that the sub-continent's massive fleet of coal plants was running dangerously low on stockpiles, "which may force the nation to buy expensive shipments of the fuel or else risk blackouts". Stockpiles, the agency says, have fallen to the lowest since November 2017.

Debasish Mishra, a Mumbai-based partner at Deloitte Touche Tohmatsu, has evidently been practicing his understatement skills. "That may raise costs across an economy that's already battling high petroleum fuel prices", he says, adding: "A sharp rise in post-pandemic electricity demand is straining fuel supply chains across the globe".

As for that rather larger bit of Asia, better known as China, we learn from Reuters that this country is having a little local difficulty.

The headline gives us a clue as to what is going on, declaring: "China power crunch spreads, shutting factories and dimming growth outlook". Widening power shortages in China, we are told, have halted production at numerous factories including many supplying Apple and Tesla, while some shops in the northeast operated by candlelight and malls shut early as the economic toll of the squeeze mounted.

China, it says, is in the grip of a power crunch as a shortage of coal supplies, toughening emissions standards and strong demand from manufacturers and industry have pushed coal prices to record highs and triggered widespread curbs on usage.

Rationing has been implemented during peak hours in many parts of north-eastern China since last week, and residents of cities including Changchun said cuts were occurring sooner and lasting for longer. Liaoning province said power generation had declined significantly since July, and the supply gap widened to a "severe level" last week. It expanded power cuts from industrial firms to residential areas last week.

The impact on homes and non-industrial users, the Reuters report added, comes as night-time temperatures slip to near-freezing in China's northernmost cities. The National Energy Administration (NEA) has told coal and natural gas firms to ensure sufficient energy supplies to keep homes warm during winter.

It can hardly be the case that these events are not having an influence on the global market. Yet, back in the UK, where the media is obsessing over difficulties with distribution to retail fuel stations, they are barely mentioned in the national media. Instead, we see the Telegraph translate the gas supply issue into "Putin's gas power play".

The narrow focus of such reports represents a failure to understand how much the global energy business has changed over the last decade. Neither the UK nor Europe are the centre of the known universe any more. There are other players in town and, increasingly, they will be calling the shots. We ignore this at our peril.

Also published on Turbulent Times.

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