Ukraine Crisis Could Help Alleviate Chinese Smog

Vladimir Putin’s land grab in Ukraine has led to Russia’s worst crisis with the West since the end of the Cold War, but it may have one favorable consequence for people far away from Crimea. With Russia’s lucrative exports of natural gas to Europe now threatened, Putin needs to find new customers to the East—and that could mean the smog-choked residents of Beijing and other Chinese cities may be able to breathe a little more easily.

The crisis in Ukraine has increased the importance of Russia’s relationship with China, its largest trade partner outside the European Union and the only country in the United Nations Security Council not to censure its actions in Crimea. Until a China pipeline is built, Russia has few export markets for gas outside Europe, leaving it vulnerable to sanctions and competition from US exports of shale gas.

Russian President Vladimir Putin is more likely to sign a 30-year deal to supply pipeline gas to China after more than a decade of false starts because the crisis in Ukraine is forcing Russia to look for markets outside Europe.

For the Chinese, a Russian pipeline would help reduce the reliance on coal-burning power plants that have fouled the air of the world’s most populous country. How bad is Beijing’s air? We know that the smog is visible from space. Recently the city’s environmental protection bureau announced the amount of pollutants smaller than 2.5 microns in diameter exceeds national standards by 156 percent.

To combat pollution, the government is trying to reduce China’s addiction to coal. With that in mind, China will ban imports of coal with high-ash and high-sulfur content, a Chinese official said at a conference Thursday. Speaking in Shanghai, Ren Leixin, head of the coal division at the National Energy Administration, said China would instead try to encourage imports of higher-quality coal.

The Chinese also want to import more natural gas as a cleaner alternative to coal. They moved closer to a natural-gas breakthrough with Russia following a meeting between Chinese Vice Premier Zhang Gaoli and his Russian counterpart, Deputy Prime Minister Arkady Dvorkovich. The two co-chairmen of a Sino-Russian energy cooperation committee spoke optimistically about boosting efforts to work together on a variety of projects.

Dvorkovich was even more upbeat, predicting a contract would be in effect by the end of the year. Corporate officials are talking, too. Traveling to China with Putin’s deputy was Gazprom Chairman Alexey Miller, who met with Zhou Jiping, the chairman and president of China National Petroleum. There’s now “active” progress in discussions about importing gas from Siberia, CNPC said on Wednesday.

China now has the advantage in its talks with Russia, which suddenly has a much greater incentive to cultivate the Chinese market. The sanctions to punish Putin’s grab for Crimea are threatening to diminish demand in Europe at the same time the American fracking boom has made the U.S. a much stronger competitor.

Putin no doubt would love to be able to stick it to the West by announcing a deal himself, and he may get the chance soon. The Russian leader is scheduled to visit Chinese President Xi Jinping next month, and if all goes well, they may announce an agreement then.

Sources: Bloomberg Business Week, South China Morning Post

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