China And Russia Eye Mongolian Gas Route

An analysis by Michael Lelyveld
2018-10-01
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china-xi-jinping-eastern-economic-forum-russia-sept12-2018.jpg China's President Xi Jinping (L), Russia's President Vladimir Putin (C), and Mongolia's President Khaltmaagiin Battulga (R), attend the plenary session of the Eastern Economic Forum in Vladivostok, Russia, Sept. 12, 2018.
AFP

Warming relations have renewed prospects for delivering Russian energy supplies through Mongolia to China as rising demand competes with historical mistrust.

Hopes for transit through Mongolia appeared to brighten last month following a meeting of the three countries' presidents at Russia's Eastern Economic Forum in Vladivostok.

Mongolian President Khaltmaagin Battulga took the occasion to repeat his appeal for new oil and gas pipeline routes through his country, eliciting a positive response.

"This is all in the works," said Russian President Vladimir Putin on Sept. 12, Interfax reported.

Chinese President Xi Jinping's reaction to the pipeline plan was not reported, but in a speech at the forum, Xi called for regional cross-border links.

"We need to make connectivity a priority. We need transnational infrastructure," Xi said, according to Platts Commodity News.

"Based on the principles of mutual trust, ... China is willing to work with Mongolia to seize opportunities, remove interferences and solidly carry out exchanges," Xi said earlier in June.

In a further sign of improving relations, contingents from both China and Mongolia joined in Russia's massive Vostok-18 military exercises in Siberia last month.

In June, the three countries agreed to establish a "China- Russia-Mongolia economic corridor." Last month, Battulga also hailed China's cooperation on a high-voltage transmission project as the start of a Northeast Asian electricity grid.

According to a recent report by Mongolia's English-language UB Post, a cooperation agreement has been signed for a trans-Mongolian gas pipeline project by China Railway 25th Bureau Group Co., Ltd. and a Chinese investment company "that could not be identified in English."

No further details on the agreement have been available.

Support for Mongolian energy transit has been building since the first trilateral meeting in 2014 with then-President Tsakhiagiin Elbegdorj at the Shanghai Cooperation Organization (SCO) summit in Dushanbe, Tajikistan.

That meeting followed two weeks after Xi's icebreaking visit to Ulan Bator, marking the first trip by a Chinese president to neighboring Mongolia in 11 years.

Four years of bridge building have so far produced a series of optimistic statements on the pipeline possibilities but, so far, few results.

"We generally support the idea," Putin said in June during the last trilateral meeting. "But of course, as always in such cases, you need to thoroughly work out the feasibility," he said at the last SCO summit in China's port city of Qingdao.

Complicating factors

Behind each of the positive statements are a series of complicating factors and considerations that have slowed developments down.

From Russia's standpoint, building a gas pipeline across the Mongolian steppe is likely to be faster and easier than completing its planned 2,800-kilometer (1,740-mile) western route through a narrow corridor to Xinjiang over the remote Ukok Plateau of the Altai Mountains.

Among other problems, the Altai nature reserve area has been designated as a world heritage site by UNESCO, the United Nations Educational, Scientific and Cultural Organization.

The proposed mountain route through the Kanas Pass is said to be at an elevation of 2,650 meters (8,690 feet).

Despite the drawbacks, Russia's monopoly Gazprom has pushed the Altai project for over a decade as its preferred option to supply China, even as it rushes to complete its 4,000-kilometer (2,485-mile) Power of Siberia eastern route.

The giant pipeline is scheduled to open in December 2019.

The Power of Siberia line is designed to deliver 38 billion cubic meters (1.3 trillion cubic feet) of gas per year while the Altai project would supply 30 billion cubic meters annually.

A Mongolia route could break the Altai impasse, avoiding both the mountains and restive Xinjiang, which already has a surplus of resources and pipelines.

"I don't think the Chinese are particularly interested in Altai, in spite of the change in rhetoric," said Edward Chow, senior fellow for energy and national security at the Center for Strategic and International Studies in Washington.

Chow said the project would "get gas to the wrong place" in China, far from its biggest consuming markets in the east.

"From an energy supply and logistics point of view, it strikes me that Mongolia makes more sense," he said.

Russia's President Vladimir Putin (L) and Mongolian President Khaltmaagiin Battulga (R) attend the Eastern Economic Forum in Vladivostok, Russia, Sept. 12, 2018.
Russia's President Vladimir Putin (L) and Mongolian President Khaltmaagiin Battulga (R) attend the Eastern Economic Forum in Vladivostok, Russia, Sept. 12, 2018.
Credit: Reuters
‘In the works’

But Russia's reports on a Mongolian option stress that all of its gas routes "are direct pipelines from Russia to China without transit states."

The argument makes Putin's comment that something is "in the works" all the more remarkable, suggesting that Russia's policy on the Altai route could be subject to change.

When asked about the Altai plan at the Vladivostok meeting, Russian Energy Minister Alexander Novak told Reuters that President Xi had set the task of "concluding the agreement of a contract on gas supplies ... in the nearest future."

"All the technical conditions have been agreed," Novak said, repeating a statement that Russian officials have been making for years.

Officials said they had been tasked with signing a contract for gas supplies from the western route by the end of this year, but the completion of the Altai pipeline was originally set for 2015.

From China's standpoint, the openings to Mongolia have been aimed at steadily building trust with investment in projects such as renovating Ulan Bator's shantytown districts.

The unusual aid for a social welfare project in a neighboring country may be needed to overcome historic resentment in Mongolia, which gained independence from China in 1911. Past reports suggest that China's commercial mining investments in Mongolia have stirred public anger.

"From the steppe to the streets of the capital, Ulan Bator, Mongolians evince a distrust of Chinese," the Associated Press reported in 2012. "Almost everyone says China is stealing Mongolia's coal."

Leaning towards Russia

Although China is Mongolia's top trading partner, the country has leaned heavily toward Russia since Soviet times.

In the past, mistrust between Mongolia and China has worked both ways with regard to energy transit.

Before Russia opened a direct branch to China for oil exports from its East Siberia-Pacific Ocean (ESPO) pipeline in 2011, it tried to supply China through two Trans-Siberian Railway routes.

Most of the oil traffic was routed through the more distant Zabaikalsk border crossing with China to the east, avoiding Mongolia, while smaller volumes were shipped across Mongolia through the Naushki crossing in southern Siberia.

After a series of complaints over high tariff costs on both routes, the Mongolia traffic was halted entirely in 2007 amid reports that China considered it less secure. The border between the two countries is 4,700 kilometers (2,920 miles) long.

A decade later, Russian energy supplies and routes to China have increased dramatically along with Chinese demand, particularly for gas.

China's gas consumption rose 15 percent last year, according to the National Bureau of Statistics (NBS), and increased by 17.5 percent in the first half of 2018 as the government pursued its push for cleaner-burning fuels.

The question is whether conditions have changed enough for China to rely on Mongolian transit.

In an interview, Chow said the statements at the latest meeting of the three presidents should not necessarily be taken as signs of progress on either the Altai or Mongolian supply routes.

"My instinct is that every time Xi and Putin meet, they have to announce something, and gas seems to be one of the favorite topics," he said. "They can't meet and not have something to announce."

Moscow has continued to press its case for the Altai project because it would rely on its well-developed resource base in Western Siberia, which also serves Europe, spurring competition for Russian gas.

But Chow said that China wants nothing to do with the Russian strategy.

"It does nothing for the Chinese," he said.

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