View all newsletters
Receive our newsletter – data, insights and analysis delivered to you

China could decarbonise faster with cheaper Russian gas

The Ukraine crisis presents China with an opportunity to accelerate its own energy transition and scale up the supply of low-carbon technologies to Europe.

By Energy Monitor

As Europe increasingly shuns Russian gas and oil, China stands to benefit both from cheaper Russian gas imports and as a primary supplier of renewables, battery storage systems and other technologies that Europe needs to move its energy transition into a higher gear, analysts say. 

Key to watch, however, is whether China uses Russian gas to further accelerate the decarbonisation of its own power sector. So far, the country has shown little shift away from coal, building more new coal plants in 2021 than in 2016.

China natural gas plant
Workers inspect the facilities for safety hazards at a PetroChina natural gas purification plant in Suining in south-west China’s Sichuan province. (Photo by Feature China/Future Publishing via Getty Images)

China’s energy transition could ultimately be assisted by cheaper gas imports that help move manufacturing away from coal-fired power, particularly manufacturing used to make the products needed for decarbonisation. It could shield them from the full brunt of future carbon border taxes like the carbon border adjustment mechanism (CBAM) the EU is proposing. 

However, locking itself into a longer-term dependency on cheap hydrocarbons has the potential to delay China’s peaking of greenhouse gas emissions in 2030 and make the road to net zero by 2060 a longer, slower shift downward off that peak.  

“There are lots of indications China wants to accelerate its transition,” Gavin Thompson, vice-chair of energy for the Asia-Pacific at research consultancy Wood Mackenzie, tells Energy Monitor. “The question is when will this happen, and for policymakers, this is really a crucial time.”

In early February, just ahead of the Ukraine crisis, China and Russia agreed on a 30-year deal for gas to be supplied by a new pipeline pumping ten billion cubic metres per year from Siberia through Russia’s Far East and down into north-western China, with the project expected to start supplying gas in around three years. 

That pipeline is not currently connected to the same pipelines that provide gas to Europe, so Russia could not play Europe against China when it comes to price negotiations. This gives China an upper hand in negotiations for cheaper gas prices for the next decade if tensions between Europe and Russia persist. 

“The isolation of Russia from Europe will make it much easier for China to achieve favourable terms for its own energy needs,” says Filip Medunic, lead coordinator of the Task Force for Strengthening Europe Against Economic Coercion at the European Council on Foreign Relations. 

“Europe is going through a profound rethinking of its energy politics,” he says. “China is most likely closely watching how the situation unfolds.”

While China has huge energy demand, and is currently supplied by a pipeline from Gazprom’s Power Siberia pipeline, the newly agreed second pipeline is still in the planning phase, Medunic says, and does not draw upon the same gas resources as Europe. While the new pipeline could eventually link up to Russia’s internal gas networks that supply Europe, any connections would be a decade or more away.

“A major redirection of flows of the magnitude that Europe consumes seems technically unlikely in the short to medium term,” he says. 

China has already embarked on a “dash for gas” since 2015 to help decarbonise industry and reduce coal consumption, partly through domestic shale gas development, and partly through new pipeline imports from Russia and increases in LNG import capacity, Michael Bradshaw, professor of global energy at Warwick Business School, tells Energy Monitor

While cheaper gas may be in the offing for China, supplies of LNG could tighten

“It is the case that if events in Europe increase gas prices and place a strong draw on LNG, then it will be more costly for China to secure LNG, should they need to,” Bradshaw says. “But it also incentivises expanding pipeline imports from Russia as an alternative to LNG, for which they have to compete, and some of which is vulnerable to maritime choke points such as the straits of Hormuz and Malacca.”

Stepping on the gas 

“The more gas China has, the faster they can do that [low-carbon] transition,” says Tom Marzec-Manser, head of gas analytics at market analyst ICIS. “If Europe’s transition and rejection of Russian gas plays into China’s gas pricing position, it puts China into a bargaining position and they can buy that gas up relatively cheap, which will help the energy transition in China.” 

Besides switching more manufacturing over to gas and away from coal-fired power, cheaper gas could also help with transitions to hydrogen, according to Thompson.

“China will have to not only do what it is doing now, which is decarbonise its power sector through renewables and expand the use of batteries, it will also have to aggressively invest in hydrogen – low-carbon hydrogen – to decarbonise those hard-to-abate sectors,” he says. “That includes blending hydrogen with natural gas [for heating], co-fired hydrogen in natural gas power plants, and co-fired ammonia in coal power plants.” 

Thompson sees further potential with China investing in both blue and green hydrogen, as well as carbon capture technologies for capturing hydrogen through coal gasification; a lot of that could be assisted with gas in the transition. 

“The alternative to [accelerated decarbonisation] not happening and China continuing to be highly dependent on hydrocarbons – continuing to import large volumes of hydrocarbons – is not a pleasant picture,” he says. “It sees emissions continuing to rise, peaking around 2030 but only slowly falling after that.”

The challenges Europe faces if it fully shuts itself off from Russian energy supplies are great, like moving into sixth gear in a five-gear car, believes Marzec-Manser.

[Keep up with Energy Monitor: Subscribe to our weekly newsletter] 

“It [an accelerated energy transition] was already an uphill task,” he says. That means, if Europe wants to deploy more wind turbines, solar panels and battery storage technology, it will need to rely on China’s already existing manufacturing dominance for those technologies, he says.

With China producing approximately 70% of all solar panels, around 50% of wind turbines and around 85% of lithium-ion batteries, it stands to reason Europe could lean heavily on China in the near term to make up for shortfalls in a shift away from Russian energy. 

Europe will also likely look to increase its own production of those products as part of promised green investments, so for China to compete it will need to produce them with a smaller carbon footprint or run up against the CBAM.

“[China] helps produce the stuff you need to decarbonise,” Thompson said. “The challenge for Europe is that if all your economic benefits flow to China your green deals are less appealing, because you don’t create the jobs and the investment opportunities that politicians are banking on.”

Topics in this article: , ,
NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. Keep up with the global energy transition with one of our editors bringing you the best of our data-led news and analysis every Monday and Thursday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU