Beijing has kept progress of the discussion about building a new gas pipeline from Russia to China slow, as issues such as the gas price, a proposed new branch and a potential partnership in downstream businesses still linger.
The feasibility study of the “Power of Siberia 2” project, designed to deliver 50 billion cubic meters (bcm) of natural gas from Russia to China annually, was approved by Russia’s Gazprom in 2021. Both sides reportedly achieved a consensus in principle last month.
While Moscow hopes to close the deal in the first quarter of this year, Beijing has so far adopted a wait-and-see approach in order to increase its bargaining chips at the negotiation table.
Chinese commentators say China wants the Russian side to “show more sincerity.” They add that Russia needs money to fund its battles in Ukraine – but China is not in a hurry to strike a deal; it has other options to diversify its energy supply.
“Although heads of the Chinese and Russian governments met in Beijing in December and discussed how to push forward an agreement for the Power of Siberia 2, it’s not easy to implement what was discussed,” a Shanxi-based columnist using the pen name of “Song Jun“ writes in an article published earlier this month.
“The two sides reached a consensus in principle but they still need to discuss the gas prices, delivery and payment methods,” he says. “Before signing a contract, they will have to resolve a lot of operational problems and find solutions to fulfill their own needs, market positions and economic benefits.”
”Although Russia urgently needs money and has a good relationship with China, Beijing will not allow the Russian side to set the gas price freely,” Jiang Fuwei, a Hainan-based columnist, says in an article.
“China and Russia will eventually make agreements on all the operational issues such as gas price and payment method. The question is which side will compromise,” Jiang says. “For this matter, China has an advantage.”
He says Russian oil and gas supply is very important to China’s energy security as the Chinese maritime routes are facing some external threats. However, he adds that China will not put all its eggs in one basket.
He says China has already been importing gas from Turkmenistan and is seeking to get fossil fuels from the Gulf through a new trade route passing through Pakistan.
He says the fact that Russian President Vladimir Putin held a meeting with Gazprom Chief Executive Alexey Miller on December 26, lasting until 2 am, showed that the Russian side could not wait any more. He says it’s still possible that China and Russia can sign a sale agreement in Spring 2024.
“Over the past two months, the Russian side has reported three times that the existing Power of Siberia’s daily gas supply recorded high,” an associate professor at the Sichuan University using the pen name “Qianli Ke” writes in an article published on December 25. “Russians closely monitor the figures and treat them as news because they want to push forward the Power of Siberia 2 project.”
“Someone said the matter is not only about gas price but may be related to Mongolia. As far as I know, Russia wants the pipeline to pass through Mongolia but China has concerns,” he says.
“Putin should understand that no matter how good Sino-Russia relations are, he must show more sincerity,” he says. “Otherwise, there is no other way to move forward.”
A new branch
In December 2019, Russia started supplying natural gas to China’s northeastern region through the original 3,000 kilometer Power of Siberia gas pipeline, which can deliver 38 billion cubic meters of gas to China annually.
China and Russia then started discussing the 2,800 km Power of Siberia 2 project, which was set to begin construction in 2024 and be completed in 2029.
Beijing wanted the gas to be sent directly from Russia to northwest China’s Xinjiang province but Moscow said building such a pipeline, which passes through the hilly areas of its Tuva Republic region, is more expensive than having a route via Mongolia.
Despite Beijing’s concerns that Mongolia may lean towards the United States one day, Russia kept pushing for a pipeline that passes through the landlocked nation, which was a part of the Qing empire before 1911.
After Mongolia signed an “open skies” agreement and proposed a rare-earth partnership with the US last August, China suggested that Russia build an extra branch for the Power of Siberia 2.
The Russian side seemed to have listened to Beijing’s request. On September 6, Russian Deputy Prime Minister Alexander Novak wrote in an article for the Energy Policy magazine that a 700-kilometer-long branch from Naushki to Ulan-Ude and then to Chita is under review.
He said the main pipeline will pass near cities of Achinsk, Krasnoyarsk, Kansk, Sayansk, Angarsk and Irkutsk and then over the territory of the Republic of Buryatia (to the south of Lake Baikal) until reaching the Russian-Mongolia border in the vicinity of Naushki settlement.
“The establishment of a branch was suggested by the Chinese side,” a Shandong-based writer says in an article published last September. “Firstly, it can save costs. Secondly, it can ease security concerns. A pipeline passing through Mongolia really makes China feel not so reassured.”
“After reaching Chita, the gas supply can directly enter China without passing through Mongolia. And there is a railway connecting Chita and China’s Manzhouli,” he says.
“At present, Russia’s special military operations in Ukraine are ongoing and spending a huge amount of resources and money on a daily basis,” he says. “It is urgent for Russia to close its natural gas deal with China as soon as possible to ensure a stable income.”
A Zhejiang-based commentator called “Guoba Ge” says the branch will reach Hulin in China’s Heilongjiang province. But he does not elaborate.
Downstream businesses
When Putin and Chinese President Xi Jinping met in Beijing on October 19, they discussed the Power of Siberia 2 but did not sign any agreement. Both sides said they wanted to achieve some real progress.
On December 19, Zhang Hanhui, Chinese Ambassador to Russia, told Russian news outlet RT that companies from both sides are actively negotiating technical, business and cooperation issues for the Power of Siberia 2 and need thorough justification, scientific and systematic, in order to implement the megaproject.
“China consistently advocates an upstream-and-downstream-integrated approach for the Power of Siberia 2 project,” he said. “This is due to the desire not only to extend cooperation from trade to the entire production chain, but also to build a more long-term and sustainable model of cooperation with Russia.”
Zhang’s comments were followed by a meeting between Russian Prime Minister Mikhail Mishustin and Xi in Beijing on December 20 and another between Putin and Miller in St. Petersburg on December 26.
Russian Deputy Prime Minister Alexander Novak said on December 27 that Gazprom and China National Petroleum Corporation (CNPC) reached an agreement in principle to implement the project and were finalizing the commercial terms, including the gas price, terms of supplies and payment methods. Beijing has so far remained tight-lipped about the negotiation.
Russia is now selling its natural gas to China for US$271.6 per thousand cubic meters and to Europe and Turkey for US$481.7.
Read: US-Mongolia aviation pact as a rare earths hedge
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