The View | Petroyuan may supplant petrodollars as Russia’s oil and gas replace US influence in Asia

The “Great Game” over oil and energy dominance is being played out in Asia’s energy markets. While US President Donald Trump plays a reactive, tactical game to “Make America Great Again” through unilateralism, China, Russia and Japan have their eyes on the long game. They are reshaping the global balance of power with bold, multilateral energy infrastructure plans and near-completed projects.

The Chinese President Xi Jinping’s recreation of the New Silk Road has attracted enormous attention as a high profile concept, whose public relations campaign has almost obscured any other regional infrastructure developments. But the Belt and Road Initiative, as it’s called, actually carries less near-term, economic and geopolitical impact than the vast gas pipeline infrastructure projects that are under way.

After years of high level meetings between political leaders and then engineers, a gas network from Russia to its Far East is coming together in a way that points towards evolving relationships. Whether it is a Kissinger-like, realpolitik goal of Russian strategic planning or sheer opportunism, these projects are reshaping and reducing China’s dependence on US oil and gas, shifting that dependence to Russia.

Through exports and investment deals, Russia has expanded its influence on Asia. CEFC China Energy last month bought 14.16 per cent of the Russian state crude oil producer Rosneft for about US$9 billion. The deal shows that the growing oil and gas relationship between Russia and China is more vital and real today - and in the near future - than building the New Silk Road. According to data by the Organisation of the Petroleum Exporting Countries, or OPEC, China’s total crude oil demand rose 6 per cent in July to 11.67 million barrels per day (BPD), from a year earlier.

Meanwhile, the US$55 billion “Power of Siberia”, a 3,000-kilometre gas pipeline built by Russian state gas producer Gazprom, will soon reach Russia’s border with China. The line is the realisation of a 30-year, US$400 billion deal that will deliver more than 1.16 trillion cubic metres of gas, starting in December 2019. It’s one of Russia’s most important energy investments and a commitment with China to forge a long term supply link.

For Russia, utilising its Siberian oil and gas fields to serve northeast China gives it an opportunity to expand into a major market outside of Europe. Gazprom supplies about a third of Europe’s gas. “Power of Siberia” could open up to 12 per cent of the Chinese gas market.

China benefits from the gas pipeline’s long term, reliable and cheap gas supplies. But, as the world’s biggest oil and gas importer, China is also making moves towards pricing its buys in its own currency, the yuan, instead of the US dollar. A shift away from petrodollar dominance is a critical step to assert the yuan as a global reserve currency.