Sino-Russian transregional gas cooperation: Key issues

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Sino-Russian transregional gas cooperation: Key issues

A.N. Steblyanskaya



At present, such transregional projects as BRICS, Transatlantic trade and investment partnership, the Trans-Pacific partnership, APEC, Asia-European Forum, and the Eurasian Economic Union have been simultaneously initiated and implemented. This fact confirms that today the transregional level of international relations has acquired particular significance. The purpose of this paper is to scientifically substantiate target priorities concerning the growth of Russian-Chinese cooperation in the gas sector, as well as to identify existing problems and advantages that foster and impede transregional cooperation between China and Russia in the energy market. One sharp issue is that China wishes increasingly to diversify gas supply, moving from coal to natural gas as well as LNG and renewable energy to improve air quality. Will China choose to increase the Russian supply of natural gas suppliers? This study uses the transregionalism theoretical framework, and through this theory was provided the Russian and Chinese gas industry overview, was described the general framework and main cooperation gas projects between China and Russia, analyzed the developing trends of Russian gas export to China. Sino-Russian transregional gas cooperation model was developed on the base of Kuznetsov's transregional framework. It was proved that transregional cooperation could be under risks and uncertainties; nevertheless, positive mutual collaboration perspectives have a bright tendency.

Keywords: transregional theory, energy policy, Sino-Russian gas cooperation, natural gas pro- duction/consumption, natural gas export/import.

В настоящее время практически одновременно инициированы и запущены такие проекты, как БРИКС, Трансатлантическое торговое и инвестиционное партнерство, Транстихоокеанское партнерство, Азиатско-Тихоокеанское экономическое сотрудничество (АТЭС), Форум «Азия -- Европа», Евразийский экономический союз (ЕАЭС). Это свидетельствует о том, что трансрегиональный уровень международных отношений приобретает особую значимость. Цель исследования состоит в научном обосновании приоритетов российско-китайского сотрудничества в газовой сфере, а также в выявлении существующих проблем и перспектив в развитии отношений между Китаем и РФ на рынке энергоресурсов в контексте теории трансрегионального взаимодействия. Предметом изучения является сфера поставок российского газа на региональный рынок КНР. Сегодня Китай заинтересован в большей диверсификации поставок газа. Экологические проблемы и обеспечение промышленности дешевой энергией являются причиной перехода КНР от угля к природному газу, а также к сжиженному природному газу и другим возобновляемым источникам энергии. Авторы статьи задаются вопросом: отдаст ли Китай предпочтение российским поставщикам природного газа? В статье представлен обзор газовой промышленности России и Китая, основные проекты сотрудничества между КНР и РФ в газовой сфере, структура экспорта и импорта газа, и тенденции экспорта российских углеводородов в Китай. На основе трансцендентальной теории Кузнецова предлагается модель межрегионального газового сотрудничества между Китаем и Россией, которая показывает, что трансрегиональное взаимодействие подвержено риску и неопределенности, но в то же время есть положительные возможности для взаимовыгодного сотрудничества как РФ, так и КНР.

Ключевые слова: трансрегиональная теория, энергетическая политика, китайско-российское сотрудничество, производство / потребление природного газа, экспорт / импорт природного газа.



Introduction

Modern development of the global economy leads to growth in consumption of energy resources. In this case regional energy resources disproportions for the most number of regions isn't provided with the sufficient level of hydrocarbons. The same way, energy integration processes is a characteristic of the World economy' present stage and testifies a globalization energy market tendency by creating transregional economic relations contributing to the countries' development. russian chinese gas energy resource

Research is devoted to Sino-Russian gas cooperation concerning evaluation of reserves, long-term production, and outlooks for consumption. Growth of the geopolitical influence of the People's Republic of China is the main factor for one of the key components of long-term political, global, and regional forecasting [Kuzyk, Titarenko, 2006]. China's steady economic growth also creates large incentives for Russia to seek energy cooperation. China became a major economic player, as its annual GDP growth has been staying at a rate higher than 7 %. For example, in 2015 World GDP increased by 3.3 %, but Chinese GDP increased by 6.9 % [China Energy Outlook..., 2016].

It is estimated that China will surpass the United States in GDP between 2025 and 2030, and China's share of global GDP will be 24 % in 2040. Thus, it would be foolish to neglect potential, economic, and energy cooperation with China. In contrast, in 2040 Russia's economy will account for only 3 % of global GDP (Tab. 1).

Table 1. Changing shares of the countries in the global GDP, 2016-2040

Country	Rating by GDP (PPP) for 2016	Rating by GDP (PPP) for 2020	Rating by GDP (PPP) for 2040
	Rating	Share in global GDP in 2016, %	Rating	Share in global GDP in 2020, %	Rating	Share in global GDP in 2040, %
China	1	18	1	29	1	24
USA	2	16	2	22	2	14
India	3	7	3	13	3	10
Japan	4	4	4	6	6	3
Germany	5	3	5	5	7	3
Russia	6	3	6	4	5	3
Brazil	7	3	8	4	4	2
Indonesia	8	3	7	4	9	2
UK	9	2	9	3	8	2
France	10	2	10	3	10	2

Sources: World Economic Outlook Database // International Monetary Fund. World Economic and Financial Surveys, 2017. URL: http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/index.aspx (accessed: 15.01.2017); Global and Russian Energy Outlook 2016 / eds A. A. Makarov, L. M. Grigoriev, T A. Mitrova. M. : Energy Research Institute, Russian Academy of Sciences (ERI RAS), Analytical Center of the Government of the Russian Federation (ACRF), 2016. 199 p. URL: https://www.eriras.ru/files/forecast_2016.pdf (accessed: 09.01.2018).

From Russia's perspective, China's massive industrial and economic growth creates enormous demand for energy and natural resources. Russia's economy, which relies heavily on these exports, is now highly complementary to China's growth. It is in Russia's best interest to cooperate with China for its own economic growth.

World energy consumption is expected to increase by 34 % between 2014 and 2035. Natural gas demand grows by 1.8 %, making natural gas the fastest growing fossil fuel. The largest part of increases in energy demand is from emerging economies, with China accounting for 30 % of this rate¹. In the Baseline Scenario 2040 forecast, global gas consumption will reach 5.3 tcm, 60 % higher than the volume of gas consumed in 2010, with the main increase (81 %) coming from developing countries. The environmental advantages of gas will support (but not determine) the growing role of gas market role in individual markets Statistical Review of World Energy // BP Global. Energy economics. Statistical Review. June 2017. URL: http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html (accessed: 09.01.2018). Global and Russian energy outlook to 2040. M. : ERI RAS; ACRF, 2014. URL: https://www.eriras.ru/files/2014/forecast_2040_en.pdf (accessed: 09.01.2018).. Simultaneously, the gas industry is the most important sector for Russia's economy. Russia's significant weight in the global economy has historically been underpinned by its strong gas and oil production[Krukov, Tokarev, 2016] Nazarov A. et al. Russian oil and gas. Basic industry overview // Gazprombank, 2003-2014. 18.06. 2014. 41 p. URL: http://www.gazprombank.ru/upload/iblock/5f5/gpb_og%20handbook_eng_180614.pdf (accessed: 09.01.2018)..

Russia produces 16.3 % of global gas. In 2016 Russia produced 579.4 bcm of gas, making it the world's second-largest gas producer after the US Statistical Review of World Energy // BP Global. Energy economics. Statistical Review. June 2017. URL: http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html (accessed: 09.01.2018).. Russia has enough reserves to satisfy its own needs and to export for the long term. The potential for Russian gas production will depend mainly on access to global gas markets [Global trends..., 2013]. According to the Energy Strategy of the Russian Federation, until 2035 the export of gas will be increase significantly, from 209 bln.cub.m in 2014, to 317 bln.cub.m. in 2035. One of the main aims of the Strategy is “increasing gas exports to the Asian Market by 8-9 times and the share of exports to Asian countries will increase from 7 % in 2014 (fact) to 44 % in 2035” Global and Russian energy outlook to 2040. Moscow: ERI RAS; ACRF, 2014. URL: https://www.eriras.ru/files/2014/forecast_2040_en.pdf (accessed: 09.01.2018).. On the Chinese side, the main strategic goal is to import more clean energy.

The “Eastern focus” involves strengthening ties with China. Asian markets have become a strategic focus of export diversification, with the fastest progress achieved in relations with China. Russia is known for its abundance of oil and natural gas in Siberia and her Far Eastern Region; however, energy cooperation between these two countries did not appear to be significant until recent decades. Russian-Chinese cooperation boomed in 2013, including export contracts (Rosneft's contract with CNPC, preliminary agreements with Sinopec), JVs, and Chinese companies buying stakes in Russian projects (Sinopec's purchase of a 20 % stake in NOVATEK's Yamal-LNG). In 2014 Gazprom signed a $400 billion, 30-year gas export contract with China for annual deliveries of 38 bcm of gas, which may boost its non-CIS gas exports by almost 25 % starting from 2019, and announced plans to renew negotiations for a further increase of gas exports to China using the Western route Nazarov A. et al. Russian oil and gas. Basic industry overview / Gazprombank, 2003-2014. 18.06. 2014. 41 p. URL: http://www.gazprombank.ru/upload/iblock/5f5/gpb_og%20handbook_eng_180614.pdf (accessed:.. On May 8, 2015 Gazprom and CNPC signed an agreement for pipeline gas supply from Russia to China (Power of Siberia-2 gas pipeline) in the amount of 30 billion cubic meters of gas a year from Western Siberian fields. On September 3, 2015 Gazprom and CNPC signed a Memorandum of Understanding for a project to supply gas to China from the Russian Far East Alexey Miller: Russia and China signed the biggest contract in the entire history of Gazprom // Gazprom. Media. News and events. 21.05.2014. URL: http://www.gazprom.com/press/news/2014/may/ article 191451/ (accessed: 09.01.2018); Gazprom delegation visits China // Gazprom. Media. News and events. 08.12. 2015. URL: http://www.gazprom.com/press/news/2015/december/article254716/ (accessed:..

The main objective of the article is to substantiate the target priorities for the development of gas cooperation between Russia and China and to identify existing problems and advantages concerning Sino-Russia integration regarding gas. The main goals are:

1. To highlight the main priorities for Sino-Russia gascooperation.

2. To identify problems and barriers for Sino-Russia gas cooperation.

3. To create a transregional model for Sino-Russia gas cooperation (on the basis of Kuznets' transregional framework).

Theoretical base for international economic interaction and cooperation for energy

There is no standard point of view about transregionalism in studies of international relations. One comes across various terms: transregionalism, interregionalism, crossregionalism, pan-regionalism, macroregionalization, network regionalism, global regionalization, and others [Kuznetsov, 2016]. The most widely used term is “interregionalism,” which was defined by Sцderbaum as the “creation of interrelation process between two regions” [Sцderbaum et al., 2006]. Reiterer defines “interregionalism” as contractual relations between regions [Reiterer, 2005]. Yeo regards this term as concerning processes of institutionalization between regions [Yeo, 2007]. Roloff considers “interregionalism” as a “process of extension of political, economic, and social relation links between international regions”[Roloff, 2006]. Russian scholars Koldunova and Voskresensky, unlike foreign colleagues, conceptualize “transregionalism” and “macroregionalization” as the creation of integrated processes between different regional clusters that are not bound to a geographic factor [Koldunova, 2010; World comprehensive regional studies, 2015]. Jьrgen Rьlland highlights the following functions of transregionalism [Rьlland, 2002]:

— balancing and bandwagoning,

— institution-building,

— rationalizing,

— agenda-setting and controlling,

— identity-building,

— stabilization and development

This typology of functions reflects the approaches of different schools of international relations, although a number of functions can be added, such as desire to obtain shortterm and strategic benefits, ensuring or expanding hegemony/leadership; increasing predictability by introducing new rules; promoting equitable and efficient allocation of resources, as well as intensifying cooperation aimed at ensuring growth, achieving common welfare, and solving global problems; ensuring global security; forming new regional (and institutional) identities; exchange of experience; initiating common projects; and achieving a new level of trust as well as the formation of global integrated regions of different levels of cohesion, interdependence, and competitiveness.

“Interregionalism” is considered as a process of dialog between two regional associations that is not yet institutionalized [Rulland, 2002]. At the same time, transregionalism represents the institutionalization of cooperation between different regions where the sides can be provided by both regional integration clusters as well as certain states. We suggest that transregional processes are the basis for Chinese-Russian gas cooperation today.

At the same time, economic integration might occur within the framework of internationalization, “...the newest form of internationalization of economic life, expressed ... in the form of an organic combination of two factors -- the interweaving of private monopolies of different countries and the implementation of a coordinated state monopolistic policy in mutual economic relations between these countries and in relations with third countries...” [Popov, 2005]. In the 1990s the study of integration was associated with neoclassical institutionalists' research. Neoclassical research is of particular interest for international economic integration, as their approaches substantiate causes of integration, as well as possible consequences [Blair et al, 1983]. Based on neoclassical theory, successful integration results in elimination of barriers to entry into markets of partner countries and in competition in the new common market, giving an impetus to economic development of member states of the integration association.

Against the background of ongoing discussions on the relationship between the global and the local regarding international economic integration, regional studies have great importance due to the high level of “regionalism” and “regionalization” gaining strength in transregional processes as the main countertrend and alternative to globalization. At present, the bulk of theoretical studies continue to focus on the transregional level of international interaction, which as the youngest approach provides a modest amount of empirical material (compared to other levels and megatrends). This fact requires not only qualitative studies in practical implementation of transregional projects, but also theoretical understanding of these processes and the formation new “transregional spaces” [Kuznetsov, 2016].

Transregionalism includes the interaction of regional associations and individual states belonging to different geographical regions. It can take different forms depending on actors involved. Regardless of whether regionalization and globalization are unidirectional or not, transregionalism appears to be a form of globalization within the framework of new regionalism, that is a form of globalization, that involves cooperation between regions as actors in the international system and individual states seeking to overcome geographical boundaries of interaction in order to ensure interests and create new economic, political, and social spaces.

Transregional cooperation becomes a specific area of foreign economic, political, environmental, cultural, educational, and other international activities carried out at the regional level and, covering common forms, differs in need and opportunities for their more active use. Other possible features include the presence and arrangement of borders, joint use of natural resources and collective solutions to problems of environmental safety, wider mutual communication between populations of neighboring states, and personal connections of people. These can create a significantly high load on infrastructure. Transregional cooperation is a stable and developing system of relations between neighboring states, based on common principles and developing within the framework of coordinated strategies in accordance with international agreements on transregional cooperation.

The problem of transregional cooperation is especially important for Russian scholarship, which is at a state of theoretical development and is connected both with the novelty of this phenomenon and with the historically short period of Russia's involvement in the global processes of regionalization. Russian analysts face the challenge of embedding numerous “case-studies” of transregional cooperation in a broader theoretical structure. Currently, the format of cooperation and interaction between states has developed into a system of crossborder cooperation, and then into a system of transregional integration.

Development of cooperation between states and other actors has brought to life a whole system of intergovernmental and non-governmental organizations of global and regional importance. The growing interdependence of the world and the emergence and aggravation of global problems have greatly contributed to the expansion of multilateral cooperation into other spheres of life. Today, cooperation covers not only trade, customs regulations, border settlement, or military-political unions, but also finding adequate responses to environmental challenges, space exploration, sharing resources for common purposes, developing communication networks, energy collaboration, and so on.

Experts highlight two major achievements of the international cooperation theory.

First, the scholarly community has agreed on the concept of “inter-state cooperation.” Following Cohen, many scholars understand cooperation as a situation where “some actors regulate their behavior in accordance with the actual or expected preferences of others, through the process of mutual coordination of policies.” In other words, inter-state cooperation involves three elements: common objectives of partner states, expected benefits, and the reciprocal nature of those benefits. Energy trade between Russia and China involves a net type of interstate cooperation: negotiations, the subject of which is the distribution of the benefits of states from their interaction. (This is both the way to cooperation, and an indicator of its existence achieved as a result of discussion policy coordination.)

A second achievement in the area of inter-state cooperation has been hypotheses on the conditions under which cooperation among states becomes most likely. These hypotheses do not constitute a comprehensive theory of inter-state cooperation, but rather are a series of variables, each of which makes collaboration more likely. Analysis and empirical testing of these hypotheses can encourage the creation of a comprehensive theory, and, therefore, the further development of theory in international relations.

Today's world is witnessing the development of transregional ties between distinct regions and powers within the international system [Kuznetsov, 2016]. We argue that the development of transregional ties with China over energy can provide a useful example of transregional theory and can contribute to transregional theory.

Methodology

The theoretical base for this research is transregional theory. Methodologically, we use historical analogies and comparative analyses, as well as a systems approach. We consider the Chinese and Russian Energy Policy not separately, but as one of several important structure-forming elements of a whole that exerts an impact on regional subsystems. We also build upon Kuznetsov's transregional model of Sino-Russia gas collaboration.

The main purpose of this article is to substantiate target priorities for development of gas cooperation between Russia and China, and identifying existing problems and advantages related to Sino-Russia integration in the sphere of natural gas. Overall, our research tasks are:

1. Highlighting the main priorities for Sino-Russia gas cooperation;

2. Identifying problems and barriers for Sino-Russia gas cooperation;

3. Creating a transregional model for Sino-Russia gas cooperation (based on Kuznetsov's transregional model).

Our data are drawn from or include: GDP, production, consumption, export, and import databases for China and Russia's gas sector, and forecasts reviews.

Overview of Russia' gas industry

Natural gas reserves, production, and consumption

The hydrocarbon industry has long been Russia's leading economic sector [Krukov, Tokarev, 2016]. In 2015 this sector accounted for 27 % of Russia's GDP, 63 % of the country's exports, and 43 % of total Federal budget revenue Results of work of fuel and energy complex of the Russian Federation in the first half of the year 2016. Prospects and tasks for 2016. Minister of Energy of the Russian Federation A. V. Novak // Ministry of energy ofthe Russian Federation. Reports and presentations. 07.04.2017. 48 p. URL: http://minenergo.gov.ru/press/doklady/1709.t/html (accessed: 09.01.2018).. Russia owns the world's largest natural gas reserves, making up 932 fields according to the State Gas balance of the Russian Federation. Reserves are almost completely involved in development. In 2015 gas categories A+B+C1 consisted of 49.8 trillion cubic meters according to the Russian Federation State balance [Programme of development..., 2007]. Evaluation of gas reserves using international classification is approximately twice as low as that classification system used in Russia. Accordingly, BP claimed that in 2015 Russia's gas reserves were 32.6 trillion cubic meters. This difference in data is due to different methods of assessment. Russia currently uses a system for classifying reserves that was introduced in 2001 The new “Reserves and resources classification of oil and combustible gases” was adopted by the Russian Federation Ministry of Natural Resources (official document No. 477 from 01.11.2013) and implemented as of 01.01.2016. However, oil and gas reserves and resources have not yet been recalculated using the under new classification scheme.. This system inherited approaches proposed in the Soviet era, and primary classification criteria take into account geological and technical features of reserves. At the same time, this method pays no attention to economic development of gas fields. According to the Russian classification system, reserves are divided into net categories:

• A, B, Ci -- proven reserves

• C₂ -- preliminary estimated reserves

• С3 -- potential reserves

• D₁, D₂ -- forecasted reserves categories

SPE-PRMS, developed by the Society of Petroleum Engineers (SPE), is the most widely used PRMS classification of reserves. According to this classification, reserves are divided into three principal categories:

• Proven: probability of extraction no less than 90 %;

• Probable: probability of extraction no less than 50 %;

• Possible: probability of extraction no less than 10 %.

Proven reserves in turn are subdivided into the following categories:

• Proved, developed, producing (PDP): reserves that are currently being extracted from active wells;

• Proved, developed, non-producing (PDNP): reserves that can be extracted with negligible capital expenditure;

• Proven undeveloped reserves (PUD): reserves that must include capital expenditures, e.g. for drilling wells, to start production.

Classification of resources utilizes such criteria as achieving commercial significance and probability of geological confirmation of reserves. SEC requirements and standards were suggested by the US Securities Exchange Commission for the companies that have a stock exchange listing. These standards have their own particular characteristics: they take into consideration only proven reserves, the duration of licenses for field exploitation, and the plans for their development.

Natural gas amounts to about half of all the primary energy resources consumed in Russia. Gas plays an especially important role in power plants, which accounts for approximately 40 % of all gas consumed. Households consume account for 20 % of domestic natural gas consumption, and another third is consumed by industry, where the largest users are metallurgy and fertilizer production Global trends in oil and gas market to 2025. Lukoil, 2013. 64 p. URL: http://www.lukoil.be/pdf/trends_global_oil_eng.pdf (accessed: 09.01.2018).. Domestic gas consumption has descreased over recent years: according to the Russian Federation Ministry of Energy, in 2015 supply of gas by domestic market dropped by 3.1 % (Fig 1), with the main decrease in consumption in the production of electricity and heat.

Fig. 1. Historical gas production and consumption in Russia, bln cub. m Source: British Petroleum statistical review of World Energy 2017 // BP Global. Media.

Speeches. 13.06.2017. URL: https://www.bp.com/content/dam/bp-country/de_ch/PDF/bp-statistical-review-of-world-energy-2017-full-report.pdf (accessed: 15.01.2018).

As is noted in Fig.1. Russia has great opportunities to export natural gas without damaging domestic demand. At a conference on plans to develop the gas industry by 2030, held in Novy Urengoi on October 11, 2010, Vladimir Putin stated, “Russia can and must meet growing gas demand, guarantee the stable supply of gas for domestic consumers, as well as maintain and expand Russia's presence on global markets. To achieve this purpose, Russia have to increase gas production from current 650 billion cubic meters per year to one trillion per year, which is practically 1.5 times more. And Russia has every opportunity to do this.” Mr. Putin said that he believes that Russia has every chance to increase natural gas production to 1.650 trillion cubic meters a year.

Russia's natural gas balance forecast is in Table 2:

Table 2. Russian Federation natural gas balance forecast till 2030, bln cub. m

----Years Forecast, bln cub. M	2015 (fact)	2020	2025	2030
Resources	49,8	996-1082	1024-1120	1035-1132
Includes Gas production, Russia	633,4	850- 941	871-974	876-981
Includes Gas production, East Siberia and Far East	47	77	87	89
Consumption	352,3	996-1082	1024-1120	1035-1132
Including domestic gas consumption		537-581	543-606	550-613
Including Export	192,5	299-344	317-343	317-343
Including export, Asian markets		25-50	25-50	25-50
Share of Asian countries in total balance, %	7	19	38	44

Sources: Programme for development in Eastern Siberia and Far East system of gas production, gas transportation and gas supply for the future gas export on the China and other Asia-Pacific countries // The Ministry of Industry and Energy of Russia. Order No. 340. 03.09.2007. URL: http://base.consultant. ru/cons/cgi/online.cgi?req=doc;base=EXP;n=491137;frame=4800 (accessed: 09.01.2018); Energy Strategy of Russian Federation, President of Russian Federation Analitical Center. 1^st Deputy Ministry of Energy of RF A. L. Teksler. Moscow, September 2015. URL: http://minenergo.gov.ru/system/download/1913/2406 (accessed: 09.01.2018); British Petroleum statistical review of World Energy 2017 // BP Global. Media. Speeches. 13.06.2017. URL: https://www.bp.com/content/dam/bp-country/de_ch/PDF/bp-statistical-review-of-world-energy-2017-full-report.pdf (accessed: 15.01.2018).

Development of the East Russia gas complex

The majority of Russian reserves (over 60 %) are located in West Siberia. Geological and engineering conditions of this region are well-studied and the country has remaining gas reserves for almost a century. At present, companies are gradually beginning to develop reserves located in East Siberia and on the continental shelf. The resource potential for the production of natural gas is reliable and sufficient to guarantee both domestic and export demand. Because of this, Russian energy strategies until 2035 emphasize attention on increasing exports to China. There is also little doubt about the future ability to satisfy demand¹¹. The major stream for this growth is cooperation between Russia and Asia- Pacific countries, especially China. In 2014 gas production in Siberia (including Siberian and Far East districts) reached 47 bln cub.m. Today, Eastern Siberia is the fastest growing gas province in Russia. In the long term (until 2035), the role of Siberia for Russia's gas industry will continue to grow. About 12 % of Russian natural gas reserves are concentrated in Eastern Siberian basins, including 11 % in the Leno-Tungussky NGB fields. Only perspective resources (categories C₃), localized in Eastern Siberia, exceed 6 trillion cubic meter. The degree of clarity for explored natural gas reserves in Eastern Siberia constitutes no more than 9 %, and in the Far East no more than 5 %, which allows for opening new considerable gas reserves in the region. Forecasts of gains in gas reserves in East Siberia and Far East would be 7 bln cub. m (4 bln cub. m for East Siberia, 3 bln cub. m for Far East) until 2030 [Programme of development..., 2007].

At present, gas extraction in Russia's eastern regions has been growing (Tab. 3). Gas production in Yakutia (based on the Chayandinskoye field, with gas reserves of 1.4 trillion cubic meters) will evolve as a unified complex along with production in the Irkutsk Region (based on the Kovyktinskoye field, with gas reserves of 2.5 trillion cubic meters). A gas pipeline will run through the Irkutsk region, the Republic of Sakha (Yakutia), and the Amur region. In the future, this might include the Sakhalin, Khabarovsk, and Vladivostok gas transmission system (GTS) General Scheme of Development of Russian Gas industry for the period till 2030 // Ministry of Energy of the Russian Federation. The order of 06.06.2011 No. 213. URL: https://minenergo.gov.ru/sites/ default/files/2016-07-05_Korrektirovka_generalnyh_shem_razvitiya_neftyanoy_i_gazovoy_otrasley_na_ period_do_2035_goda.pdf (accessed: 09.01.2018). ^{Alexey Miller: Russia and China signed the biggest contract in the entire history of Gazprom // Gazprom.} Media. News and events. 21.05.2014. URL: http://www.gazprom.com/press/news/2014/ may/ article191451/ (accessed: 09.01.2018); Gazprom delegation visits China // Gazprom. Media. News andevents. 08.12.2015. URL: http://www.gazprom.com/press/news/2015/december/article254716/ (accessed: 09.01.2018). [Programme of development ..., 2007]. Eastern Siberia and the Far East thus provide significant reserves and prospective natural gas reserves allow the creation of new regional gas production centers. Production capabilities of these centers are based on existing confirmed reserves in unique and large deposits, and reserves have grown through active exploration General Scheme of Development of Russian Gas industry for the period till 2030 // Ministry of Energy of the Russian Federation. The order of06.06.2011 No. 213. URL: https://minenergo.gov.ru/sites/de- fault/files/2016-07-05_Korrektirovka_generalnyh_shem_razvitiya_neftyanoy_i_gazovoy_otrasley_na_pe- riod_do_2035_goda.pdf/ (accessed: 09.01.2018).:

Table 3.Gas production volume in Eastern Siberia and Far East 2010-2030, mln cub. m

Years Region	2010	2011	2012	2013	2014	2015	2020	2030
Eastern Siberia	6	7	8	10	15	50	55	57
Far East	26	28	29	30	32	35	95	105
Total	32	35	37	40	47	85	150	162

Sources: The Programme of development in Eastern Siberia and Far East system of gas production, gas transportation and gas supply for the future gas export on the China and other Asia-Pacific countries // Ministry of Industry and Energy of Russia. Order No. 340 03.09.2007. URL: http://base.consultant. ru/ cons/ cgi/online.cgi?req=doc;base=EXP;n=491137; frame =4800 (accessed: 09.01.2018); Kryukov V. A., Tokarev A. N. Possibilities of development of the Russian-Chinese cooperation in the oil and gas sphere // Forum of the high-level science centers on collaboration between people's Republic of China and the EEU. 14.06.2016. Harbin, 2016. P. 34-42.

Hydrocarbon deposits of the Sakhalin sea shelf island (projects Sakhalin-1, Sakhalin-2, and promising blocks Sakhalin-3-6).

Liquefied Natural Gas (LNG) in Russia is made at a plant on Sakhalin Island belonging to the Sakhalin Energy Investment Company Ltd (half of whose shares belong to JSC Gazprom). The design capacity for the plant is 9.6 million tons of LNG per year, although in 2014 it produced 10.8 million tons of liquefied gas that was sent to Japan, Korea, China, Taiwan, and Thailand. Gazprom and the Shell company have considered the possibility of building a plant with the capacity to produce 15 million tons of LNG.

South-Tambeyskoye gas condensate field (Yamalo-Nenets Autonomous Okrug)

The planned capacity of the “Yamal LNG” third stage will be 16.5 million tons of LNG (about 23 billion m3). The first phase of the plant was launched in December 2017, with most of the gas already contracted by members of Yamal LNG: PJSC NOVATEK (50.1 per cent), French Total (20 %) and CNPC (20 %), and Silk Road Fund (9.9 %). CNPC still has only one gas supply contract with Novatek, as most contractual obligations by CNPC are with Gazprom and Rosneft.

Salmanovsky (Utrennee) oil and gas condensate and gas Gydanskoye condensate field (Yamalo-Nenets Autonomous Okrug).

Novatek also plans to carry out the Arctic LNG 2 project on the Gydan Peninsula. Its planned capacity is 20 million tons, while the cost of the project is estimated at $10.0 billion, $17 billion less than the cost for Yamal LNG. It is assumed that Total, CNPC, and Silk Road Fund will also be involved.

The Chayandinskoye oil and gas condensate field (Republic of Sakha [Yakutia]).

At 2015 Gazprom finished large-scale prospecting at the Chayanda oil-gas condensate field, which is considered as a first-priority gas source for deliveries to China by the pipeline “Power of Siberia.” Obtained data would allow construction of a three-dimensional field model to specify rhe geological structure of reserves. Commercial gas production is supposed to begin in 2018. At the Chayandinsky field, the expected maximum level of annual production will be 25 billion CBM of gas in 2022.

Kovykta gas condensate field (Irkutsk region).

Along with Chayanda, the Kovykta gas-condensate field, at present in a stage of trial development, would become a gas source for the “Power of Siberia” pipeline; in 2014 gas production was 7 million cubic meters.

Sobinski-Paiginskoye and Yurubcheno-Tokhomskoye oil and gas condensate field (Krasnoyarsk Region).

The supply of natural gas to China would allow for the diversification of Gazprom's natural gas export and would stimulate the development of gas transmission infrastructure in Russia's eastern regions Alexey Miller: Russia and China signed the biggest contract in the entire history of Gazprom // Gazprom. Media. News and events. 21.05.2014. URL: http://www.gazprom.com/press/news/2014/may/ article 191451/ (accessed: 09.01.2018); Gazprom delegation visits China // Gazprom. Media. News andevents. 08.12.2015. URL: http://www.gazprom.com/press/news/2015/december/article254716/ (accessed: 09.01.2018).. Russia is known for and abundance of oil and natural gas in Siberia and the Far East; however, these resources have long been irrelevant to China, and energy cooperation between these two countries did not appear to be significant until recently. However, it could develop rapidly for the sake of Sino-Russia collaboration.

1. Overview of China's gas industry

4.1. Natural gas reserves, production, and consumption

Gas does not play a large role in China's energy mix at present. As a percentage of energy consumption, China has one of the lowest gas usage rates in the world, but has had to change for Chinese energy use to become cleaner. In the last five years, China's gas consumption, production, and imports have grown rapidly. In 2015, gas was 8 % of China's mix and the government plans to achieve 12 % by 2020 [Kutler, Schwartz, 2014]. China's gas consumption in 2014 was 1884 million cub. m, and this rose to 1973.2 million cub. m in 2015 Shan Weiguo. CNPC Economics&Technology Research Institute. July, 2016. URL: https://www.ief. org/_resources/files/events/iac-meeting---cnpc/cnpc-presentation.pdf (accessed:19.06.2018)..

China is the sixth largest natural gas producer, with its production tripling between 2005 and 2016 (Fig. 2). China's natural gas resource base is enormous, and China could potentially be a larger natural gas producer and consumer than at present [China Energy Outlook..., 2016]. Considerable investments in geological exploration allowed China to increase the own proven gas reserves; in 2016 year proven reserves were 5.4 trln cub. M British Petroleum statisticalreviewofWorldEnergy2017//BP Global. Media. Speeches. 13.06.2017. URL: https://www.bp.com/content/dam/bp-country/de_ch/PDF/bp-statistical-review-of-world-energy-2017-full-report.pdf (accessed: 15.01.2018).. China's territory has rather large natural gas reserves [Krukov, Tokarev, 2016]. In the future, China's gas production will only increase (Tab. 4), but this would be not enough to cover the country's energy requirements. Simultaneously, the Chinese authorities intend to increase natural gas imports by five times from 2015 to 2030. In 2015 53 billion cubic meters of gas were imported, and fifteen years later natural gas imports could rise to 270 billion cubic meters Annual Report. 2016 // China National Petroleum Corporation. URL: https://www.cnpc.com.cn/en /2014enbvf/201504/99544ca9d50b4fb4bb610ec9570b0974/files/4f1cfc8cb2b6492999eaeba0f5b08262.pdf (accessed: 09.01.2018).. Gas production from major producing regions remained stable [Steblyanskaya et al., 2017a; Steblyanskaya et al., 2018].

On March 1,2016, China's Energy Institute issued China Energy Outlook 2030s, which indicated that global total energy production will decrease because energy demand will slow down -- but in China the situation is different China Energy Outlook 2030. Beijing: China Energy Research Society, Economy and Management Publishing house. April 2016. 262 p.. China's gas consumption 2015 was1932 million cubic meters and increased by 5.7 %; 2015 production was 1350 million cubic meters and increased by 5.6 % [China Energy Outlook..., 2016].

Fig. 2. Hystorical gas production, consumption and import, China (bln cub. m)

Source: British Petroleum statistical review of World Energy 2017 // BP Global. Media. Speeches. 13.06.2017. URL: https://www.bp.com/content/dam/bp-country/de_ch/PDF/bp-statistical-review-of-world-energy-2017-full-report.pdf (accessed: 15.01.2018).

Table 4.World and China natural gas supply by type, bln cub. m

By type	World	China
	2000	2010	2015	2020	2030	2040	2050	2000	2010	2015	2020	2030	2040	2050
On Shore Conventional	1889	2310	2307	2413	2516	2550	2392	27	68	83	o o	147	150	118
Off Shore	329	431	520	706	872	822	857	1	5	17	32	42	54	73
Tight Gas	92	175	192	242	477	672	800	0	20	25	37	59	49	36
Shale Gas	11	151	402	478	771	1027	1184	0	0	4	20	70	94	O O
Coal Bed methane	43	59	57	74	104	143	174	0	1	4	14	26	36	42
Bio Gas	5	15	18	20	27	40	62	0	1	1	2	4	10	22
Others	2	2	2	13	26	35	37	0	0	1	11	24	33	35
Total	2371	3142	3500	3947	4793	5291	5506	28	95	135	216	372	426	426

Source: China Energy Outlook 2030. Beijing: China Energy Research Society, Economy and Management Publishing house, 2016. P. 38-41.

According to the State program “Energy strategy development until 2020" China's gas consumption will increase by 10 %. Development of clearner energy means an increase in the share of natural gas in China's energy balance. There are expectations that, un to 2020, China's gas consumption will increase, production and export will remain stable, and prices will slow down [Wang et al., 2013]. Nevertheless, the period between 2013 and 2016 represents a milestone for China's gas market, when China made arrangements to secure sufficient future pipeline gas imports, given the growing gap between national gas supply and demand [Xin Li, 2015].

Natural gas demand and import

Global energy consumption is expected to increase by 34 % between 2014 and 2035, with natural gas growing by 1.8 %. The increase in demand for gas comes from emerging economies, with China accounting for around 30 % of the total gas increase in demand. According to BP, China's primary energy resource consumption increased from 3.1 % in 1980 to 5.9 % in 2016 British Petroleum statistical review ofWorld Energy 2017 // BP Global. Media. Speeches. 13.06.2017. URL: http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html (accessed: 09.01.2018).. CNPC Economics and Research Institute declared that China's primary energy demand will be higher by 2030 and more than double (Tab. 5), constantly growing until 2050.

With regards to global supply and demand of natural gas, China is a wildcard (Tab. 6). In 2014 China ranked sixth for pipeline imports. Natural gas imports in 2015 were 597.7 mln cub. M; there were no exports Shan Weiguo. CNPC Economics&Technology Research Institute. July, 2016. URL: https://www.ief. org/_resources/files/events/iac-meeting---cnpc/cnpc-presentation.pdf (accessed: 19.06.2018).. Table 7 provides the structure of China's natural gas imports by country, between 2007 and 2014. Currently, China' gas import dependency is 30.97 % [Kutler, Schwartz, 2014]. Dependency on foreign will increase and by 2020 could be 21.4 % of total hydrocarbon imports, growing to 33.3 % in 2020 and 40 % in 2040 [China Energy Outlook..., 2016]. A less optimistic version is that by 2030 the degree of import dependence will reach 20 % of the total consumption level China Energy Outlook 2030. Beijing: China Energy Research Society (CERS), Economy and Management Publishing house, April 2016. 262 p.. Central Asia, especially Turkmenistan, is China's main source of natural gas imports via pipeline. China has built a large LNG import capacity.

Table 5. Primary energy demand, mln toe

Years Indicator	2000	2010	2015	2020	2030	2040	2050
China Primary Energy Demand	23	99	174	270	458	606	640
World Primary Energy Demand	2094	2790	3112	3517	4233	4740	4986
China in total, %	1	4	6	8	11	13	13

Source: China Energy Outlook 2030. Beijing: China Energy Research Society (CERS), Economy and Management Publishing house, 2016. P. 38-41.

Years Basic scenario	Year of
	report/ forecast year	2010	2015	2020	2030
Japanese Energy Economy Academy of science	2007	667		1600	3944
American Energy report	2007	792	1047	1302	1981
Chinese Energy Ministry	2008		1211		2211
Chinese Oil and Gas Economy and Technology Research Institute	2006	1055	1489	1989	3822
Chinese Energy Department	2007	1210		3000	3900
Chinese Oil and Gas Economy and Technology Research Institute	2007	1146	1843	2455	3482
Chinese oil and gas Academy	2008	1165	2250	2860	4299

Source:Zheng J. Yan Q. China Energy long-term forecast (2030, 2050) and development stategy: electricity, oil and gas, nuclear energy and environment situation. China University of Petroleum press, 2011. 180 p.; The National Energy Research Group in long-term development strategy. Beijing: China Science press, 2011. 213 р. URL: http://www.sciencep.com/libservice/liuyan_list.php?1=1&curpage=72788 (accessed: 09.01.2018).

Kazakhstan is constructing the Beyneu-Bosa-Shymkent pipeline and will be able to export 5 billion cubic meters of gas annually to China. Further, in October 2013 the first pipeline gas began to run from Myanmar to China at a volume of around 12 billion cubic meters gas per year. At present, the share of gas in China's energy mix constitutes only 5.7 %, which testifies to the high potential for expanding gas consumption in China over future years. China's gas imports from Central Asian could increase, specifically from Turkmenistan (China's largest supplier from the region), Uzbekistan, and Kazakhstan: over the next 5-10 years China will receive over 60 billion cubic meters of gas per year from these countries. By 2020 Central Asian gas annual pipeline capacity should increase to 80 billion cubic meters, and China would be able to satisfy 40 % of gas import needs.

Exports from Malaysia and Indonesia would decline because of depletion of fields and growth in those countries' internal consumption. However, current suppliers from the Middle East -- Qatar, Oman, and UAE -- and Nigeria would face competition not only from new export LNG lines opening in Australia and East Africa, but also from the United States. Russian LNG projects also aim to gain this part of the market. As a result, the LNG market in Asia-Pacific countries will become increasingly saturated and competitive. OPEC countries in 2013 satisfied most of China's demand, but the country looks for diversification and delivery reliability. In the future, China can import oil not only from OPEC or Russia, but also from other regions. A similar situation is observed in the national natural gas market. China is inclined to diversify deliveries and chooses other regions for gas acquisition, such as imports from Eastern Siberia and Central Asia [Lazko, 2014].

Development of transregional Sino-Russia gas cooperation

Energy cooperation between Russia and China reached an historic peak. From a political perspective, energy cooperation between Russia and China is a result of stable political trust and diplomatic relationships [Krukov, Tokarev, 2016]. Russia and China are the largest neighboring countries; a promising and productive diplomatic relationship between these two countries is in the geopolitical strategic interests for both sides. Moreover, Russia and China had already developed a multi-dimensional cooperative mechanism prior to developing energy cooperation. Under the framework of the Shanghai Cooperation

Organization (SCO), Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan are capable of resolving regional security issues amongst themselves while providing military capability for regional stability. Meanwhile, cooperation between Russia and China on higher education, culture, and religion has brought progress in these areas for both countries. The Silk Road Economic Belt and the 21^st-century Maritime Silk Road also promote a good relationship between China and Russia [China Gas industry analysis..., 2016]. It is easy to see that energy cooperation is only a part of a large package that Russia and China have been exchanging for several decades [China Gas industry analysis., 2016].

Russia's natural gas consumption will not increase significantly, and China's consumption will remain greater in foreseeable future. Thus, Russia will be able to export a considerable quantity of natural gas to China (Tab. 8, Fig. 3).

According to the Energy Strategy of the Russian Federation, the export of gas will increase significantly, from 209 bln cub. m (2014) to 244 bln cub. m (2020, planned), 324 bln cub. m in 2025, and 317 bln cub. m in 2035. One main aim of the Strategy is “increasing gas export to the Asian Market by 8-9 times (from 14 to 128 bln.cub.m.), and the share of the Asian countries' export will increase from 7 % in 2014 (fact) to 44 % in 2015” Energy Strategy of Russian Federation, President of Russian Federation Analitical Center. 1st Dep-uty Ministry of Energy of RF A. L. Teksler. Moscow, September 2015. URL: http://minenergo.gov.ru/system/download/1913/2406 (accessed: 09.01.2018).. The export of natural gas via pipeline from Russia to China will be up to 1000 mln.cub.m. in 2025 and 1300-1600 mln.cub.m. in 2030 China Energy Outlook 2030. Beijing: China Energy Research Society (CERS), Economy and Man-agement Publishing house, April 2016. 262 p.. Russia's share in the Chinese natural gas market will increase rapidly, up to 21 % by 2030 and 32 % by 2040 (authors' calculations based on the EIA forecast and the China Energy Research Group long-term development strategy forecasts). For forecasts on Russian gas to China via pipeline, see Fig. 4.



Table 8. Global natural gas production/consumption, net trade in natural gas by region by region, 2011-2040

Indicators	Trillion cubic feet
	History	Forecast
	2012	2020	2025	2030	2035	2040
Russia, production	21,8	21,9	23,4	25,9	29,3	31,8
Russia, consumption	15,7	15,3	15,8	16,2	16,5

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