China Considering Using Force Majeure Clause to Refuse Russian Gas Deliveries via Power of Siberia Pipeline, Could Harm Bilateral Relations
On March 12, it was reported that exports via the Power of Siberia pipeline will be stopped to allow for “regular maintenance.” The pipeline, which was built as part of a $400 billion agreement between Gazprom and China National Petroleum Corporation (CNPC) to export natural gas from Russia to China, came online as recently as December 2019, with President’s Xi and Putin attending the launch via video-link.
Despite the claim that the stoppage is to allow for routine upkeep, it coincides with a significant reduction in demand for gas in the Chinese market due to the impact of the ongoing coronavirus outbreak. There are rumors that China National Petroleum Corporation (CNPC) will declare force majeure, which absolves the company from the obligation to purchase natural gas from Gazprom due to severe unforeseen circumstances.
If CNPC seeks to withhold payment, the stoppage would lead to a further drop in Russian government revenues, already under pressure from the recent collapse in oil prices. This kind of declaration by CNPC could prove to be a source of tension between the two countries. CNPC’s potential declaration of force majeure would heighten stress on Gazprom’s and Russia’s near-term financial picture, particularly in a window where Turk Stream and Nord Stream 2 are large claimants on Russian fundraising.