The already complicated negotiations between Russia and China on the Power of Siberia 2 pipeline (or Power of Siberia 2) have stalled again: neither party has formally withdrawn from the project, which was initially approved last September, but the details have not yet been defined nor has a start date for construction been set. Moscow and Beijing cannot reach an agreement on the price of natural gas: the Russians want to sell it at $250 per thousand cubic meters (about 21 euros per megawatt-hour), but the Chinese want to pay only $50 per thousand cubic meters (just over €4/MWh), which is the subsidized price the Kremlin applies to Russian citizens.
For comparison, the price of gas in Europe hovers around €50/MWh.
WHY THE PRICE ISSUE IS CRUCIAL
The price issue is crucial because Russia ideally wants to replace the European gas market – the most profitable one before relations plummeted with the invasion of Ukraine – with the Chinese market. However, it seems unlikely that China can guarantee the same profits because, although the capacity of Power of Siberia 2 is roughly equal to that of Nord Stream 1 (the main Russian pipeline to Europe, sabotaged in 2022 and now out of service), Beijing is determined to obtain extremely advantageous prices.
In general, China is negotiating hard on Power of Siberia 2 also because it intends to extract as many concessions as possible from Russia, in order to avoid developing an energy dependency on it: a pipeline is indeed a binding infrastructure, unlike a regasification terminal which can receive shipments from various sources.
WHAT WE KNOW ABOUT POWER OF SIBERIA 2
According to the Russian state energy company Gazprom, which is carrying forward the project, Power of Siberia 2 is a pipeline that will connect Russia to China through Mongolia, with a transport capacity of fifty billion cubic meters of gas per year. The infrastructure will market the reserves of Yamal, a territory in western Siberia, the same ones that used to reach Europe before the crisis.
THE REVELATION OF THE WALL STREET JOURNAL
The American newspaper The Wall Street Journal wrote that Chinese officials warned their Russian counterparts that, under current conditions, an agreement on Power of Siberia 2 is impossible. The communication reportedly preceded Russian President Vladimir Putin’s visit to Beijing last May.
CHINA NEGOTIATES FROM A POSITION OF STRENGTH
According to estimates reported by Asia Times, China currently imports Russian gas through Power of Siberia 1 at a price of $240-280 per thousand cubic meters. However, Beijing is not dependent on Moscow for energy: it can also source gas from Central Asia through a pipeline system with Turkmenistan, Uzbekistan, Kazakhstan, and Tajikistan (with a combined capacity of 85 billion cubic meters per year); it can buy liquefied gas from Qatar, Malaysia, and potentially even from “adversary” countries like Australia and the United States; it can rely on growing domestic production, which last year exceeded 260 billion cubic meters.
– Also read: China wants to gas up more with Russian Arctic LNG
Russia, on the other hand, needs China and Power of Siberia 2 because it must find an outlet for the Yamal fields and because soon – by the end of 2027 – it will no longer be able to export gas to the European Union, either as LNG or via pipeline.
THE MONGOLIA ISSUE
Beyond prices, there is no absolute certainty even about the route of Power of Siberia 2. Russia has exerted considerable pressure for the pipeline to pass through Mongolia, for cost reasons, while China preferred a direct connection for security reasons: in 2023 Ulaanbaatar signed an “open skies” agreement (on air transport observation, simplifying) with the United States, which upset Beijing, fearing a possible blockade of the Mongolian section of the pipeline.
In the end, China yielded to Russia’s request – at least this emerged from the September agreement in principle – but only in exchange for a significant discount on gas prices. However, no agreement was reached on the selling prices.
