China and Russia Step Back from Dollar

Russia and China are looking for ways to avoid the U.S. dollar and have agreed on a new gas deal in another currency. The deal, which is to run for 30 years, will transport 10 billion cubic meters of gas per year from Russia to China.

The gas will not go through the existing Power of Siberia pipeline, but a new pipeline will be built to connect eastern Russia with northern China.

China currently obtains a majority of its gas through liquefied natural gas (LNG) imports, which had increased by 17% in 2021. However, this growth rate is expected to slow over the next few years with pipeline imports increasing.

The deal can also be seen as China’s next step in an energy transition to carbon neutrality. Many countries in Europe and also the U.S. want to start the energy transition with gas. China has recently announced that maximum emissions will be reached by 2025 and is aiming for energy neutrality by 2060.

On the other hand, a coal shortage occurred in China in 2021. This had led to energy shortages in some regions, so the Chinese government decided to announce maximum coal production. In 2021, Chinese coal mines produced 4.07 billion tons of coal, 4.7% more than the previous year. In December alone, 384 million tons were reportedly produced, up 7.2% year-on-year.

To avoid this and to reduce emissions, the new gas deal could be a good option for China. This is also consistent with reports that both Russia and China are happy with the new deal.