Russia’s attempts to build the Power of Siberia 2 (PS-2) natural gas pipeline to China appear to be stalling despite repeated statements from Moscow that an agreement with Beijing will be concluded as soon as possible.
On the sidelines of the Shanghai Cooperation Organization Summit in Astana on July 4, Russian President Vladimir Putin and Chinese President Xi Jinping have instructed national companies to agree on terms of delivery for the Power of Siberia 2 gas pipeline “as soon as possible,” Interfax quoted Russian Deputy Prime Minister Alexander Novak as saying.
“I’m afraid it’s just another wishful statement,” Tatiana Mitrova, a research fellow at Columbia University’s Center on Global Energy Policy, told NE Global. “Novak keeps repeating that the deal will be done ‘in the nearest future’ for the last two years, I would not take it seriously so far,” she said. She added that FT’s report last month that negotiations have stalled due to what Moscow considers “unreasonable” price demands from Beijing seems to be much more important.
Mitrova pointed out that it seems that there are no updates since Putin’s visit to China on May 16-17 when nothing happened and when Alexey Miller, the CEO of the Russian gas monopoly Gazprom, was not even a part of the delegation. “No contract, no commitments, rumors about diverging vision of the acceptable price. Nevertheless, I would not completely rule out this project. It might become relevant for China at a certain point, if the global geopolitical situation changes,” she said.
Chris Weafer, CEO and General Director of Macro-Advisory, the leading independent strategic business consultancy in the Eurasia region, told NE Global that China wants to further improve its critical energy security by adding more imports via land routes.
“But it does not want to pay for what it regards as the excessive cost of building Russian pipelines, especially as it has an alternative option with the proposed fourth pipeline (Line D) from Turkmenistan. Beijing can afford to wait before deciding which route to favor,” he said. The fourth pipeline, which is 966 kilometers in length and will connect the Galkynysh Gas Field in Turkmenistan to western China via Kyrgyzstan and Tajikistan, is already under construction.
“Moscow clearly does not like the price terms offered by China for Power of Siberia 2. But Beijing is in a much better position to wait while Moscow needs to find new export markets for its gas. Beijing is hoping that Russia needs the money badly enough that it will give in and accept what they are offering, which is cheap gas with a long review date,” Weafer said.
Russia is eager to link the Chinese market to gas fields in western Russia that once supplied Europe.
Russian energy exports to Europe have fallen precipitously since the invasion of Ukraine in February 2022, with pipeline gas and oil flows to Europe declining by more than 80 percent and coal exports by nearly 100 percent, according to the Center on Global Energy Policy (CGEP) at Columbia University’s School of International and Public Affairs.
Although Russia has been able to redirect most of its oil and coal exports to other markets, it has been unable to do so with natural gas due to a lack of infrastructure linking its western production basins to consumers in Asia, the CGEP said.
The Power of Siberia-2 pipeline, which would be designed to carry 50 billion cubic metres of natural gas a year from the Yamal region in northern Russia to China via Mongolia, could offset nearly half of the decline in Russian pipeline gas exports to the EU between 2021 and 2023.
Mitrova told NE Global that in any scenario Power of Siberia 2 will be unable to replace European market not only due to smaller volumes, but, more importantly, due to much lower prices.
