The common feature of this period of cooperation is the gradually enhancing mutual trust mostly entailed by political will. The agreement of 2001 gave a new impetus for developing sound relations in numerous dimensions; the settlement of territorial issues between Russia and China reduced transaction cost in political and economic dialog. Russia started its pivot to the East long before its ultimate disaccord with the West began. Although the pivot started to take place in a rather slow manner due to the fact of lacking adequate infrastructure in the region, Russia had demonstrated its willingness to collaborate with Chinese companies in terms of joint oil exploration, oil exports and constructing a spur to China for facilitating future oil supplies. At the same time Russia displayed its caution towards the growing oil-thirsty neighbor during IPO of Rosneft in 2006. Before the financial crisis China was regarded as an important partner but not the crucial one, and Russia kept selling most of its oil to Europe using the old infrastructure at increasingly high prices. Today looking back to the past one might think that on the one hand the first two terms of Putins's administration were quite productive in terms of bilateral cooperation - the pipeline project was agreed and first bulk supplies began, but on the other hand Russia could have thought about large-scale diversification of oil exports much earlier having a heavier weight in negotiations, when it did not suffered from the financial crisis and geopolitical predicaments.

Map #2. “East Siberia- Pacific Ocean” - ESPO oil pipeline

After the financial crisis Russian oil companies found themselves short of funds and, as far as China's economy went through the crisis quite smoothly, Rosneft and Transneft addressed to their Chinese partners for financial support. In 2009 as a result of negotiations CNPC and China Development Bank (CDB) agreed to lend 15 USD billion to Rosneft for 20 years with the condition of oil supplies that account for 15 million tons per year; Transneft received 10 USD billion for finishing on time the ESPO pipeline project with the spur to Daqing by 2011 Robin Paxton, Vladimir Soldatkin. China lends Russia $25 billion to get 20 years of oil. Reuters. February 17, 2009.. As soon as Russia started to pump oil to China CNPC refused to pay the price set up by the Russian side because the pricing did not correctly reflect transportation costs of the new spur to Daqing. In 2011 the negotiations resulted in a huge discount of 1.5 USD per barrel made for CNPC that eventually cost Rosneft around 3 USD billion of income deficiency. Soon after resolution of the pricing issue Rosneft again addressed to China in order to cover its short-term debts after acquisition of TNK-BP. In 2013 CDB provided to Rosneft an additional loan backed up by expanded oil supplies for the next 25 years Vladimir Soldatkin, Andrew Callus. Rosneft pays out in historic TNK-BP deal completion. Reuters. March 21, 2013.. Thus, additional 15 million tons per year were stipulated for expanded CNPC contract, and also Rosneft signed a new contract with Sinopec for exporting 10 million tons per year. The amount of contracted oil that was supposed to be delivered to Chinese companies was actually exceeding the existing throughput capacities of the pipeline. This obstacle was overcame by the two side through signing a transit agreement with KazTransOil which agreed to transfer oil to China via Kazakhstani pipelines enabling to deliver 7 million tons of Russian crude per year Reuters Staff. UPDATE 1-Rosneft agrees to ship oil to China via Kazakhstan. Reuters. November 11, 2013.

The importance of cooperation with China was significantly amplified after the Ukraine crisis of 2014 and the following imposition of sanctions on Russia's economy. The western sanctions limited the financial access of several Russian companies to western banks, Rosneft was one of them. Large Chinese suppliers of drilling rigs, such as Honghua Group and Petro-King, entered the Russian market providing oil companies with the required equipment that western suppliers stopped to deliver. After 2014 Rosneft actively started to seek cooperation with Chinese companies. In 2014 Rosneft offered to CNPN to purchase a 10% share in one of the richest oilfield in Estern Siberia - Vankor. Also that same year a 49% share in two huge oilfields, Russkoye and Yurubcheno-Tokhomskoye, was offered to Sinopec. Nevertheless the Chinese side did not demonstrate the same eagerness to strike new deals right after the imposition of sanctions. This time Chinese companies displayed a certain degree of caution regarding political and economic situation in Russia. First, by that time China had already guaranteed a huge amount of Russian supplies for many years to come. Second, having a much larger bargaining power under conditions of the Western sanctions China does not need to hasten and can afford a long-time contemplating about the effectiveness of the upstream investments. Third, China's economic slowdown that started shortly before the Ukraine crisis implies that the PRC at some point adjusted its needs for oil, decreasing the pace of consumption growth. Also the delays in decision-making of Chinese partners might be explained by the fact that the presidential election of 2018 has just taken place yet, and as far as the elections might bring some changes and rearrangements in political and business or a new package of sanctions, Chinese investors are prudently taking a pause. Nevertheless, these delays made Rosneft to start seeking new partners in order to demonstrate that it is not overly dependent on the old partners. In 2016 a 15% stake in Vankor oilfield was sold to the Indian ONGC with an offer of future share increasing Henderson J., Mitrova T. Energy Relations between Russia and China: Playing Chess with the Dragon. Oxford Institute for Energy Studies. Oxford. Aug 2016. P.49. In 2017 14.16% of Rosneft shares valued 9 USD billion were sold to a relatively small private Chinese energy company CEFC, although CNPC was also claiming its interest in purchasing the stake Chen Aizhu. Exclusive: China's CEFC plans its own bank, as Rosneft stake bulks up trade. Reuters. November 1, 2017.. Rosneft is going to deliver 60.8 million tons of crude to CEFC over the five years starting from 2018 Reuters Staff. Russia's Rosneft confirms oil supply deal with China's CEFC. Reuters. November 20, 2017. . One might regard this turn to CEFC as a type of diversification, showing that Rosneft is not overly dependent on the Chinese oil giant and have an option of choosing between state-owned companies and private ones. At the same time Rosneft express its loyalty toward Chinese investors who are at lesser extent bound to contemplate political circumstances and financial sanctions, and predominantly motivated by practical logic of efficiency and profitability. Recently the deal with CEFC was suspended due to Chinese domestic investigation with regard to corruption of the head of the company Ye Jianmin.

2.5 What China gets from Russia, how and why?

Over last two decades of negotiations and cooperation China managed to contract a huge amount of Russian oil and Russia surpass the historical leader, Saudi Arabia, and eventually became the largest oil supplier of China by 2016. After contracting the railroad oil in 2004 the imports almost doubled from 5.3 MT to 10.8 MT, later on, loins-for-oil deals after the financial crisis and the additional contract of 2013 expanded the import scale up to 52.5 MT in 2016.

Graph #2. Crude Oil Imports from Russia to China in the XXI century International Trade Centre data.

The oil supplies delivered from Russia are mostly coming from the northern border to Northeast China, which is a characterized by industrial specialization in Chinese economy. The spur of ESPO leads to Daqing - the Chinese oil capital situated in Heilongjiang province with one of the world's most productive oil field surrounded by the relative infrastructure with refining capacities. Also Russian oil is delivered by sea from Kozmino bay to Tainting refineries. The geographic location of Russian oil fields and convenient logistics make Russia a very important partner for China. Both sides clearly benefit from the basis of mutual complementarity. But the amount of supplies from Russia is only one side of the coin. As for 2016, Russian share in Chinese oil imports constituted almost 14% of all supplies, in other words, almost the same amount coming from Latin America. It means that Russian oil also plays a significant role in terms of geographic diversification and securitization of imports.

Graph #3. Share in value in China's oil imports in 2017 (%) International Trade center data

Apart from the fact, that piped oil is delivered directly to the recipient without passing checkpoint that might be blocked in case of political confrontation with third countries or attract oil-seeking pirates Bill Tarrant. Balancing powers in the Malacca Strait. Reuters. March 7, 2010. There are three oil pipelines from neighboring countries to the PRC: Kazakhstan, Myanmar and Russia. The Kazakhstani pipeline ends in Xinjiang and predominantly serves the local production needs with the output of 200 thousand bpd Mariya Gordeyeva. Kazakhstan seeks better offer from oil majors to end Karachaganak gas row. Reuters. September 8, 2017. The Burmese pipeline goes to Yunnan province with more developed refining capacities expected to be able to receive 442 thousand bpd; the deliveries started only in 2017 after a years-long delay Bloomberg. China Opens Delayed Myanmar Oil Pipeline to Get Mideast Crude Faster. 11 Apr. 2017. Since 2018 Russian ESPO is able to pump about 600 thousand bpd, moreover, the close sea route from Kozmino to Tianjin can be hardly perceived as questionable as the sea routes going along the Malacca Straight. Thus, the Russian pipeline is characterized by a number of advantages that China cannot disregard - ESPO is one the most productive, fastest, convenient and secure ways of transporting energy resources to the PRC. Except for purely economic advantages of Russian oil imports, there is also in a sense a political spillover. In 2016 Russia exported petroleum oils to China valued at 16.9 billion USD, which constituted more than 52% of all Russian imports to China. Oil revenue is a very important source of state budget, therefore 22% of all oil exports going to China (2016) are obviously of a great importance for the Russian government and this fact is justified by the increasing amount of Mr. Putin's involvement into high-level meetings between two countries over the last decade Henderson J., Mitrova T. Energy Relations between Russia and China: Playing Chess with the Dragon. Oxford Institute for Energy Studies. Aug 2016. P.17. While China is seeking to support its security of supply, Russia is concerned with the security of demand and stability of the consumer's purchasing power. Although there is a clear signs of economic interdependence and mutual interest, the degree of one-sided dependency differs among the two neighbors, where China has a greater bargaining power as buying Russian oil implies contributing into keeping Russian economy tuned. Summing up, Chinese oil diplomacy towards Russia provided the PRC with regionally required amounts of energy resources, securitized and efficient logistic infrastructure and political-economic clout over its northern neighbor.

The mechanism of securitizing Russian supplies is utilized by China within common practices of its energy diplomacy and they might be divided into two groups - formal contract constraints (equity oil and oil backed loans) and informal constraints (guanxi inherent in Sino-capitalism). Equity oil was contracted several times over the beginning of the XXI century. Initially, the scale of Chinese oil assets in Russian oil sector was quite moderate. In 2006 Sinopec bought 100% stake in Udmurtneft and then sold 51% to Rosneft keeping 49% for itself. Same year Rosneft and CNPC stroke a deal on Vostok Energy and processing joint venture in China sharing the assets in a way that Rosneft got 51% stake in the Russian upstream and 49% stake in Chinese downstream, while CNPC got the rest proportion of assets. Equity deals were also signed by relatively small companies, for example, in 2009 Chinese Investment Corporation purchased a 45% stake in Russian Nobel Oil with 150 million barrels of reserves. What is much more important for China is the ongoing process of purchasing 14.6% share in Rosneft by CEFC. When the deal is finished China will get a much deeper interest in regular supplies from the northern neighbor. Moreover, China also binds the supplies through the oil backed loans and prepayments. China Development Bank's loan guarantees supplies from Russia up to 2030 delivering 300 thousand bpd. The same volumes are backed by CNPC prepayment covering the time period right up to 2038 Henderson J., Mitrova T. Energy Relations between Russia and China: Playing Chess with the Dragon. Oxford Institute for Energy Studies. Oxford. Aug 2016. P.28. Apart from formal constraints, it is worthwhile to notice that Chinese companies have good relationship with Rosneft and it is partly the result of establishing good relations with Igor Sechin, CEO of Rosneft and person close to Vladimir Putin, who claims that strengthening relations with the Asia Pacific countries and, in particular, with China, is of the companies top priorities Reuters Stuff. Russia's Rosneft, China's CEFC agree joint exploration in Siberia. Reuters. Sep 3, 2017,.

Why China can be regarded as a top priority for the Russian oil sector? Or in other words what makes China unique and why did it succeed to get required amounts of oil, secure supplies and political-economic leverage over its neighbor? The success of China's oil diplomacy might be regarded from the point of view of geopolitical traps where Russian happened to be. First, China takes advantage of the geographic location of the most of Russian oil reserves situated next to the largest oil consumer. Chinese consumption is growing and will grow in a long term unlike the situation in other East Asian mature markets such as South Korea and Japan, which can not substitute the same scale of oil demand. Second, as Russia stays in political confrontation with the West, Russian oil companies can only hope for the cooperation with China led by Five Principles of Peaceful Coexistence. And again, other East Asian markets such as Japan and Korea are less impassive towards western political discourse. Third, the political trap naturally entails economic trap that implies the lack of availability of western technologies and investments and also economic dependence of Russian economy on the international oil trade, where Chinese share constitutes 22% of all oil exports and this figure is highly likely to grow in the years to come.

Graph #4. Comparison of oil imports in China, Japan and South Korea (tons)

With the rise of Chinese economy its needs in oil significantly increased, as well as its import dependency. Throughout the first decades of the XXI century China is actively seeking the opportunities to guarantee stable oil supplies from different sources and making efforts to diversify its oil imports. The very fact of China's ascent deepened global and regional integration of Chinese economy. In the process of growing interdependency between oil-rich Russia and oil-seeking China the later obtained a greater bargaining power through financing the most vital economic sector of Russia. Equity contracts and oil backed loans enabled China to have a long term secure oil supplies from the north to the country's industrial base in Northeast China. The biggest deals were signed at the moments when Russian oil companies stayed in unfavorable situation, such as for example the global financial crisis or restructuring of huge corporate debts. Chinese diplomacy got what it sought to get right before the Ukrainian crisis in 2013, and the crisis just increased already significantly strong Chinese bargaining power and provided some new opportunities for China such as the equipment export and purchasing a minor stake in the main Russian oil company. Chinese diplomacy reached its goal of keeping energy security via Russian supplies through long term binding financial instruments timely applied. The reasons of Chinese success are closely connected to geographic, political and economic traps constraining Russian behavior on international markets.

3. China's gas diplomacy towards Russia

Historically gas did not take a significant share in China's fossil fuels consumption. First, the pipeline network was underdeveloped in Northeast China and mountainous South China, domestic production capacities simply could not make gas a countrywide mass commodity; second, ready to hand coal availability made Chinese consumers quite dependent on this cheap and omnipresent fuel, which is much more easy and convenient to produce and transfer because, unlike the case of gas production, there is no need to dig wells, construct pipelines or liquefy fuel. Although over the years the prevalence of coal consumption entailing huge amount of CO2 emission eventually led to serious environmental problems and more ecofriendly substitutes such as natural gas became increasingly required. Apart from the use of natural gas in household utilities, it is also needed in petrochemical industry, which boomed in China simultaneously with its economic ascend at the beginning of the century. Natural gas is an important ingredient for producing ethane, propane and butane - chemical compounds required for production of all sorts of things such as plastic, clothes, paint and many others. Moreover gas is used as a source of heat to produce even wider variety of things such as glass, still, ceramics, paper and so one.

3.1 Role of natural gas in China's energy consumption complex

In the historical perspective the structure of China's energy demand shows a shift towards reducing coal consumption and substituting it with more ecofriendly energy sources. For example, taken into consideration the consumption structure composed of oil, gas, coal, renewables, hydro and nuclear energy, in 2000 the share of coal and gas in the array amounted for 71% and 2% respectively. In a decade, the composition shifted towards 70% and 4%, and in 2016 the respective figures were 62% and 6%. The Chinese government has an ambitious plan to rebalance energy consumption structure in a way where by 2020 natural gas is taking 10% among other energy resources Energy Information Administration. Natural gas serves a small, but growing, portion of China's total energy demand, AUGUST 18, 2014 url: https://www.eia.gov/todayinenergy/detail.php?id=17591 (accessed; 01.05.2018). The growth in gas consumption is as impressive as the increase in oil consumption. In 2000 China's natural gas demand amounted for 24.5 bcm (billion cubic meters), and just in ten years it quadrupled up to 109 bcm and by the 2016 it almost doubled up to 210.3 bcm BP. Statistical review of world energy. Full report. 2017. The nine-fold growth in natural gas consumption indicates the increasing need in this energy resource, which is able to enhance environmental situation in the country and also to contribute to the growth of industrial sector, which is trying to be less dependent on coal burning. Burned hard coal emits 228.6 Btu, while natural gas produces almost as twice as small amount of carbon dioxide - 117 Btu Energy Information Administration. Carbon Dioxide Emissions Coefficients https://www.eia.gov/environment/emissions/co2_vol_mass.php (accessed; 01.05.2018). The most gas-lacking region and simultaneously the most industrial and CO2 emitting region is Northeast China notoriously known for its excessive pollution. Northeast China not only lacks the pipeline sufficiently developed infrastructure, but also does not have a convenient access to the seaports able to receive LNG supplies. The same problem partially concerns South China.

China's own reserves are not enough to satisfy its growing demand, although a lot of new gas reservoirs were discovered through the recent years. At the very beginning of the century China possessed 1.4 tcm of proved reserves, which doubled in a decade through subsequent explorations up to 2.8 tcm. In 2016 the reserves were proved to be expanded up to 5.4 tcm. The production-to-reserves ratio as of 2016 was about 38.8, which means that there is a room for production growth. While at the beginning of the century China was able to satisfy its needs with domestic production equal to 27.2 bcm in 2000, later on the increasing need in natural gas led to the divergence of domestic consumption and production. In 2010 China could not already cover its gas demand as it produced 99.1 bcm (91%), and in 2016 domestic production totaled 138.4 bcm, which could cover only 66% of the demand.

Graph #5. Comparison of China's gas production and consumption

(million tons oil equivalent) BP Statistical review of world energy data.

The growth rates in consumption and production were much higher in China than globally. From 2005 till 2015 the average annual growth rate in the global gas consumption constituted 2.3%, in China the growth rate amounted for 15%; global production rate amounted for 2.4%, while Chinese growth rate totaled 10%. This domestic consumption-production divergence trend shows that China increasingly needs new markets to purchase natural gas from international markets BP. Statistical review of world energy. Full report. 2017.

3.2 Natural gas foreign strategy

Natural gas trade significantly differs from the international oil trade due to the natural conditional of the two substances. Liquid oil makes oil logistics more flexible and less dependent on infrastructure. Gas can be delivered whether by pipelines or by maritime shipments in a liquefied form. Exporters of LNG require liquefying facilities, while importers need to have regasifying capacities. As of 2016, China almost equally diversified its gas imports by purchasing 28 MT of natural gas in gaseous state and 26 MT of liquefied natural gas. Moreover, China diversified its imports in terms of supplying countries - more distant LNG exporters and neighboring pipeline gas exporters. The price of gas is not quite uniform and significantly varies depending on the form of trade, pipeline gas or LNG, and the distance that natural gas traverse in order to reach the importing country. Usually, pipeline gas is cheaper because it is delivered from relatively close locations and does not need the same processing as LNG does. For example, in 2016 one ton of pipeline gas from Turkmenistan to China was about 81% of the LNG price coming from Australia UN International Trade Center. China imports. Petroleum gas and other gaseous hydrocarbons. URL: https://www.trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1|156||||2711|||6|1|1|1|2|1|1|2|1 (accessed; 01.05.2018).

The first bulk supplies of LNG from Australia to China happened in 2006, but at that time gas imports still were not of great importance. Later on Australia significantly increased its LNG exports to China and it ranked as #1 LNG supplier of China in 2016 with exports equal to 12 MT. Another significant China's LNG suppliers in 2016 were Qatar (5MT), Indonesia (2.8 MT), Malaysia (2.6MT) and Papua New Guinea (2.1 MT) UN International Trade Center. Supplying markets for petroleum gas and other gaseous hydrocarbons imported by China. URL: https://www.trademap.org/Country_SelProductCountry_TS.aspx?nvpm=1|156||||271111|||6|1|1|1|2|1|2|2|1 (accessed: 01.05.2018). Although China got a quite diversified range of huge LNG exports it could not escape traditional pipeline supplies from the neighboring countries. Notwithstanding that LNG has a variety of advantages, such as greater logistical and contractual flexibility, it also has certain limitations such as relative high costs of liquefying and regasification, and inability to use it directly and steadily in residential distribution. For the residential sector pipeline gas coming from the near abroad is more suitable. To invest into building a gas pipeline an exporter has to be sure that there is a long-term market for the pipeline gas; that is why pipeline contracts are relatively long-lasting. Long pipeline gas contracts guarantee long-term supplies to the residential sector making socio-political investments into energy demand security of the recipient and into strategic bilateral relationship between a buyer and a seller.

Thus, in order to establish a steady residential distribution network China began to negotiate gas pipeline projects with neighboring countries, which happened to be self-sufficient and quite rich of this fossil fuel. In 2010 China started to import pipeline gas from Turkmenistan to Xinjiang province, and in 6 years the traded volumes increased almost tenfold as additional parallel pipelines were constructed through the territories of Uzbekistan and Kazakhstan. In 2016 the imports from Turkmenistan amounted for 21.6 MT, making this Central Asian country the main supplier of natural gas to China. Uzbekistani imports are also important for securing energy security of the Chinese western provinces; the imports that started in 2012 increased to the level of 3.2 MT in 2016. One year after Uzbekistani imports began, Myanmar also started supplying Southwest China with pipeline gas; in 2016 the Burmese imports amounted for 2.9 MT UN International Trade Center. Supplying markets for petroleum gas and other gaseous hydrocarbons imported by China. URL: https://www.trademap.org/Country_SelProductCountry_TS.aspx?nvpm=1|156||||271121|||6|1|1|1|2|1|2|2|1 (accessed: 01.05.2018). Both of the regions, Western China and Southwest China are the territories locked out of the sea routes, therefore, pipeline diplomacy is the only way of guaranteeing gas demand security in those regions.

3.3 Russia in China's gas diversification map

Russia is one of the richest countries in terms of gas reserves, in 2016 it ranked #2 right behind Iran with the proven volumes amounted for 32.3 tcm that constitute 17.3% of total gas reserves globally. These huge reserves allow Russia to prioritize this relatively cheap and more eco-friendly fuel in domestic energy consumption structure. Natural gas constitutes about 52% of primary energy consumed. Historically Russia produced more gas than it consumed. For example, in 2016, around 390.9 bcm were utilized domestically, while the whole production volume constituted 579.4 bcm. Over the last decade the proportion between domestic consumption and production roughly kept around two thirds BP. Statistical review of world energy. Full report. 2017. Russia is actively involved in international gas trade keeping on the soviet legacy of supplying European countries with natural gas through the network of pipelines originating from Ural region. Recent exploration of new gas fields in Eastern Siberia and Far East led Russia to seek new markets in East Asia, where burgeoning China needs energy resources more than the others.

3.4 Development of Negotiations on Gas Supplies from Russia to China

Talks on gas between Russia and China began early at the beginning of the XXI century, and in 2004 Gazprom and CNPC signed the Strategic Cooperation Agreement. In 2010 Gazprom, enjoying its monopolistic rights for foreign gas trade, started its LNG exports from Sakhalin gas fields to China but the scale of those supplies was quite irrelevant for such global energy market actors as Russia and China. Concrete and significant decisions were not made for more than a decade and negotiations could not succeed due to several reasons.

First, there were disagreements regarding supply routes. Initially Gazprom wanted to construct a pipeline from the Western Siberian gas fields to Xinjiang province through Altai. The Gazprom's rational of using developed fields concerned the possibility of diversifying supply routes to the East, therefore, increasing bargaining power in gas trade with Europe. But China wanted to have a pipeline coming from a much closer gas fields in Eastern Siberia or Far East and ending up in much more densely populated regions of the country in North East and along the coast. The Chinese position was very rational and pragmatic: rejection of the piped gas from the developed fields implied that China did not want to invest in economically inefficient project. The Chinese proposal of Eastern gas routes became explicitly logical after Gazprom purchased one of the largest gas field in Eastern Siberia - Kovykta field - which initially belonged to TNK-BP Henderson J. The pricing debate over Russian gas exports to china. Oxford Institute for Energy Studies. Oxford. Sep 2011. P.10. After the purchase of Kovykta assets Gazprom consolidated the main land gas fields in the region and enhanced its monopolistic positions domestically. Eventually, China succeeded in promoting its objectives, and Russia agreed to construct a pipeline coming from Kovykta field throug Chayandinskoye gas field in Yakutia to Heilongjiang province in Northeast China Henderson J., Stern J. Potential Impact on Asia Gas Markets of Russias Eastern Gas Strategy. Oxford Institute for Energy Studies. Oxford. Feb 2014. P.2-4. The rout and the relative construction project were accepted by the both sides in 2011 and named as Power of Siberia.

Map #3. Power of Siberia - planned gas transit routes Henry Henderson. Gazprom Increases Spending In 2018. Gaz Compression Magazine. November 29, 2017.

Second, another issue that prolonged negotiations related the pricing mechanism. Russian side pondered to set the same gas price for China as it did for European countries. After Fukushima accident in 2011 the prices for LNG in Asia Pacific increased rapidly due to Japan's concern about energy safety. Gazprom was insisting on oil-linked high prices, while China was trying to negotiate relatively low prices linked to Chinese domestic coal market Henderson J. The pricing debate over Russian gas exports to china. Oxford Institute for Energy Studies. Oxford. Sep 2011. P.23. For a long time Gazprom had monopolistic rights for gas exports, both piped and liquefied, and eventually this fact made the company to bargain with its foreign partners for the highest possible price seeking to maximize profit in a noncompetitive environment Henderson J., Mitrova T. The Political and Commercial Dynamics of Russia's gas Export Strategy. Oxford Institute for Energy Studies. Oxford. Sep 2015. P.17-18. At the same time China did not need to strike a deal with Gazprom as soon as possible due to the fact that there were several other options for gas imports at more competitive price. Moreover, the Chinese concern about reducing coal consumptions by more ecofriendly substitutes was gradually developing over the last decades and did not urge China to make a decision on gas imports as soon as possible and at any price.

Permanent delays in negotiations with Gazprom makes Chinese counterparts switch to another important player - Novatek. Cooperation with other actors apart from Gazprom became possible when in 2013 the Russian government liberalized LNG export paving the way for Rosneft and Novatek to develop collaboration with East Asian countries importing gas Kahtrin Hille. Russia paves way for limited liberalization of LNG exports. Financial Times, 22 Nov 2013. At the very beginning of 2014 CNPC purchased 20% stake in Novatek's Yamal LNG project, later on followed by contracting supplies amounted for 60 MT of LNG for a span of 20 years. Yamal LNG project has not been in full operation yet, as after the Ukraine crisis the West imposed sanctions on the potentially largest LNG enterprise in the world that eventually affected the developmental process. The first supplies via the northern route are projected to start in 2019 Mia Bennett. Russia and China claom success at Yamal LNG. The Maritime Executive. 15 Dec., 2017.

Map #4. Yamal LNG possible shipping routes Jack Farchy,Elena Mazneva. Russia Wins in Arctic After U.S. Fails to Kill Giant Gas Project. Bloomberg. Dec 14 2017.

In order to complete the plan on time and in comprehensive way Chinese investors provided a huge amount of funding to Yamal LNG project which could not receive investments from American financial institutions. At the end of 2015 Novatek sold 9.9% stake of Yamal LNG valued at 1.1 EUR billion to the Silk Road Fund, which also provided a loan in the amount of 770 EUR million. In 2016 Chinese banks traditionally engaged into foreign outward investments also allocated funds to the project: Chinese Export-Import Bank assigned 9.3 EUR billion and China Development Bank assigned 9.8 RMB billion (approximately equal to 1.33 EUR billion) Тимофей Дзядко. Ямал СПГ» привлек €10,6 млрд у китайских банков. РБК. 29 апреля, 2016.

This fast deal between CNPC and Novatek created a competition between Russian gas producers, shook up monopolistic positions of Gazprom and urged it to be more accommodating towards Chinese partners. In May 2014, in attendance of Vladimir Putin and Xi Jinping, CNPC and Gazprom signed a historical deal guaranteeing piped gas supplies through the Power of Siberia. According to the contract agreement Gazprom has to deliver 38 bcm annually during the span of 30 years. The exact date of the supply commencement is still in a flow state and supposed to start in a range between 2019 and 2021 Gazprom Export. Foreign Partners: China. URL: http://www.gazpromexport.ru/en/partners/china/ (accessed: 01.05.2018). To guarantee sufficient funding of construction Chinese banks provided a club loan to Gazprom. In 2016 Gazprom negotiated a five-year credit provided by China Development Bank and China Export-Import Bank. The price of the project was estimated by the head of Gazprom around 400 USD billion, but the price of the gas itself is not declared by the two sides Брагина Н., Барсуков Ю. «Газпром» поставит газ в Китай к зиме. Коммерсант. 4 июл.2017. The fact that the gas price was not publically declared creates an image of a win-win deal regardless the actual contact details. If the price is quite high, China would like to keep it in secret as Turkmenistan could try to negotiate its own bulk exports in order to get more competitive conditions. If the price is relatively low, the Russian company would not like to reveal it in order to avoid the seeming of having no other options in the region accept for China. For Russia and China the Power of Siberia is a project of great importance, and regardless the actual price of contracted gas and possible concessions, the new pipeline will benefit both sides and allow resolving individual problems of the two parties - be it fueling state budget revenue through gas exports as in the case of Russia, or solving a regional complex of gas related issues as in the case of China.

3.5 What fruit do negotiations on gas bring to China?

Cooperation with Russia in the gas sector stands aside among other deals China stroke with its partners. The deal with Novatek guaranteed a long term LNG supplies which lie predominantly among the Russian coastal line to the coastal industrial centers such as Tianjin. Unlike other maritime ways the Northern route does not come across potential flashpoints such as Strait of Hormuz, Malacca straight and South China Sea. Contracting Yamal LNG China not only diversified supply risks, but also mitigated them choosing a relatively secure route which is free of piracy activities and does not traverse disputed areas. Apart from safe and stable supplies, China also got an expertise in gas exploration and production in Arctic conditions through participating in technical support of Yamal LNG project Filimonova N., Krivokhizh S. China's stake in the Russian Arctic. The Diplomat. Jan 18, 2018.. This experience puts Chinese petrochemical companies among the most technically advanced enterprises in the world and also increases their competitiveness as potential partners for Arctic oil and gas production.

The pipeline supplying Northeast China has a greater value for the PRC than merely boosting its petrochemical industry predominantly located in the region traversed by the pipeline. Apart from the use of gas in industrial ends, piped gas from the Power of Siberia could satisfy China's residential gas demand in the region that needs it the most in terms of heating. Northeast China is characterized by quite cold and humid continental climate influenced by Siberian Anticyclone, and at least for five months the mean temperature in the region is below zero degrees Celsius. This is a strategic advantage of the Russian pipeline in comparison with the Burmese pipeline supplying Southwest regions with warmer climatic zones. Another advantage of the northern pipe is that unlike the Central Asian and the Burmese pipes it goes directly to the densely populated provinces and is much closer to such huge cities as Beijing, Tianjin and even Shanghai. Thus, the long term gas supplies from Russia is characterized by the evident presence of long term demand created by objective conditions such as social geography and climate. Northeast China is one of the most industrial and polluted regions in the country. Most of power in the region is generated by coal-fired plants that heavily contribute to creating hazardous smog. Rebalancing energy consumption structure in Northeast China through substituting coal consumption by natural gas consumption could enhance the environmental condition of the region. And again, Russian geographic position made Chinese energy diplomacy to target the closest foreign gas fields in order to resolve its domestic coal-burned emission issue.

The way China's gas diplomacy succeeded does not significantly differ from its oil diplomacy. In the case of natural gas China purchased a stake in Yamal LNG project through CNPC and the Silk Road Fund. Sufficient financing from the Chinese side guaranteed completion of the project regardless American sanctions and also provided long-term supplies of LNG. Contracting Yamal LNG is even more important not from the point of view of securing energy supply but due to the creation of Russian internal competition among different gas producers. Although negotiations with Gazprom started at the very beginning of the century, the deal was made only after Chinese investors displayed their interest in a grand Yamal LNG project. Hard bargaining strategy towards Russian gas producers was also backed up by contracting natural gas imports from the other regional producers, which do not have the same bargaining power in the gas industry as Gazprom does. But contracting Burmese and Central Asian gas during decade-long negotiations with Russians allowed China to alleviate stubbornness of the Russian gas giant and make it more accommodating.

The reasons why Chinese gas diplomacy seemed to reach its goals are also overlap with geopolitical traps of Russian oil industry. Gazprom's gas fields in Eastern Siberia are situated in a close proximity to the huge Chinese market and there is no other international actor able to provide the same degree of long-term security of demand. Potentially, abundant gas from the Power of Siberia could be liquefied and then sold to Asia Pacific countries, but, given relatively low gas prices, transporting Eastern Siberian gas to the Far Eastern coast and subsequent liquefying seems to be an uneconomic project for the time being.

4. Analysis of china's soft mercatilism

China's energy diplomacy towards Russia has certain mercantilist features in a sense that it is a state-led policy implemented through state-owned national companies seeking to get a competitive edge in the energy sector Ziegler, C. E., & Menon, R. Neomercantilism and Great-Power Energy Competition in

Central Asia and the Caspian. // Strategic Studies Quarterly. Summer, 2014. P.20. This competitive edge was reached through the following tools. First, betting on geography - Eastern Siberian resources are geographically locked up right next to the largest energy consuming market, and this fact makes it difficult to have a range of byers with the same amount of purchasing power. Japan and South Korea represent mature markets and do not have the same energy consumption growth rate with the PRC. Moreover, Japan and South Korea do not have an on-land border that facilitates trade and pipelines construction. And the last but not least, Japan and Korea are politically inclined towards the West, and the US in particular, that have several conflict points with Russia. It means that Russia do not have that many options for dealing with its abundant energy resources that excessively cover regional domestic consumption. China, on the contrary, is surrounded by the variety of suppliers from all cardinal directions, and Russia is just a part of China's supply compass. By contracting energy pipelines from Russia China is aiming at providing energy security on the regional level as most of the energy flows lead to Northeast China. The very size of Chinese economy and its enormous consumption needs makes Russia to incline towards China. For China Russia is one of a few other suppliers, but at the same time Russia is the only regional supplier that can export energy resources to Northeast China in the most secure and fastest way. Therefore, for none of them escaping from cooperation or excessively hard bargaining is not the wisest decision.

Second, China demonstrated a great diplomatic timing striking the main bargains with Russian partners when Russian side was in vulnerable and relatively weak positions. Biding its time gave significant results to China three times. First, Chinese side helped Russian companies to recover after the financial crisis of 2008 underwriting huge oil supplies and negotiating the price for its own benefit. Very soon in 2013 China expanded its energy supplies package for the following 25 years after another refinancing problem of Rosneft. And finally, China guaranteed long-standing gas supplies from Gazprom by the routes beneficial for China right after the deterioration of Russia's relations with European importing countries in 2014. This tactics of good timing is inherent in mercantilism and directly linked to the notion of relative gains - China is getting richer at the expense of contingencies weakening Russian bargaining power - be it the issue of pricing or pipelines logistics. By providing huge funds to the Russian companies on the right time Chinese side resolved the issue of diversifying energy imports from the northern direction and also contributed to long-standing national energy security. The financial institutions that facilitate deals between Russian and Chinese companies - China Development Bank and Silk Road Fund - are subject to the Chinese side and, therefore, help the PRC gain even more as Chinese actors also earn money through mediating deals.

Chinese energy foreign policy could hardly be regarded as liberal due to the degree of governmental interest and penetration into the energy sector. Nevertheless, some features of neoliberalism are also present at the Sino-Russian energy cooperation and the fact of mutual interdependency should be recognized as two sides represent a vivid example of mutual self-interest in terms of the need in guaranteeing energy demand from the one side and energy supply from the other one. The political will of the two countries facilitate the dialogue in the economic sphere. In terms of absolute gains Russia benefits a lot from the energy trade with China and that is why it is not correct to say that China implementing the classic mercantilist “beggar-thy-neighbor” policy, which stands for improving its economic situation by negatively impacting economies of other states.

Chinese approach is more pragmatic - the loans and investments are given to Russian companies not because of a great generosity and Sino-Russian friendship - Russia is a partner who needs the cooperation more than China, which is now more open to the global markets than Russia under the Western sanctions. That is why in practice China can implement mercantilist diplomacy and dictate its conditions, while in words it can claim that China advocates globalization and liberalization of trade Xi Jinping. Keynote Speech by H.E. Xi Jinping, President of the People's Republic of China, at the Opening Session
Of the World Economic Forum Annual Meeting 2017, Davos, 17 January 2017 URL: https://america.cgtn.com/2017/01/17/full-text-of-xi-jinping-keynote-at-the-world-economic-forum (accessed: 01.05.2018). The way China implements its energy diplomacy towards Russia is predominantly neomercantilist but with a certain features of mutual interdependency inherent at neoliberal policies. The complex issue of Chinese energy diplomacy is another example of the fact that many western constructs are not perfectly suit Chinese reality and that most of western concepts are taking “Chinese characteristics” as they get to the Chinese ground. China decides by its own when it should be realist and when liberal. Thus, on the basis of observation of Chinese diplomatic behavior in the gas and oil markets the hypothesis on China's soft neomercantilist diplomacy towards Russia is confirmed.

Chinese soft neomercantilism applied to Russia brings desirable fruits to China. The answer for the first research question - What aims do China seek to attain in its energy policy towards Russia? - has three dimensions. First, guaranteeing stable long-term energy security in the bordering industrial regions. Chinese energy diplomacy towards Russia significantly contributes to Chinese energy security in terms of imported volumes, imports diversification, and also secure and convenient transportation routes. Russian is becoming a regional supplier of Northeast China. Second, deepening its regional influence. China is getting a much bigger political and economic influence on Russia as the proportion of Russian energy exports to China grows in comparison with energy supplies to Europe. Equity deals with Russian energy companies closely associated with the Russian government help China indirectly penetrate into Russian bureaucratic and business elites' system. It is getting more salient that if Russian pivot to the East is not directed from Beijing than it is certainly consulted with the PRC elites. Third, resolving its domestic environmental problems and improving ecological conditions of the most polluted region. Russian energy imports are aimed to facilitate the shift from coal-dependency in Chinese energy consumption structure. Eventually, China will try to substitute coal-burning with less hazardous natural gas and, therefore, positively influence the environmental conditions of Northeast China.

The reasons of China's success are connected to the virtues of Chinese diplomacy itself from the one side and to the relatively weak bargaining position of the Russian side. First, China managed to diversify its import routes in a way that there is no excessive predominance among the energy suppliers and China can enjoy a variety of options from where to buy energy. Energy-hungry China does not excessively dependent on particular energy exporter. Therefore, the situation of China resembles some features of monopsony where the market could be heavily influence by one huge buyer. Moreover, China succeeded to contract a number of “rogue” states that have limited capabilities to bargain due to the fact of their partial international isolation. Second, Russia recently is shifting towards those “rogue” states and finds itself in situation where it has little choice but to pump its energy to the influential partner, which does not have any political requirements and demands to the Russian government. Energy export is vital for Russian economy, therefore, China is proposing a reciprocal scheme implying the moto “we buy your energy under our terms”. And the geographic location is only fortifying this scheme.

The way China attains its diplomatic aims includes the following direct contracting a partner in need, as it happened with Gazprom. In case of Gazprom the need to contract China was even stimulated by CNPC, which crated a competition among Novatek and Gazprom for gas supplies. Chines diplomatic tools also utilize the tactics of loans-for-energy, when Chinese actors provide credits to the Russian companies, which repay it with funds raised from energy supplies to China. Apart from loans, Chinese companies are also purchasing stakes in the Russian energy companies in order to solidify their position and enhance interdependency.

Summing up, the answer for the second research question - Why and how China does attain what it gets from its energy diplomacy towards Russia? - contains two dimensions with several subcomponents. The reasons of diplomatic success are: 1) import diversification tactics which enhances China's bargaining position and makes Russia one among many; 2) geopolitical and economic traps where Russia happened to be in recently facilitate promotion of Chinese conditions. The mechanism of the diplomatic success includes: 1) biding the right time for a beneficial contract; 2) binding the partner with long-term loans-for energy; 3) rooting in the partners' equity through purchasing shares in energy companies. These are the main features of Chinese energy diplomacy towards Russia that display what, why and how China gets what it aims to receive. Considering the recent trend in Chinese consumption needs one can suppose that in the near future new energy contracts between Russia and China will be signed. According to the mercantilist theory it could happen after weakening of Russia bargaining power in case of potential future sanctions limiting financial and technological access in the West that pushes Russia closer to China.