Negotiations Stalled Between Russia and China Over ‘Power of Siberia 2’ Pipeline
Discussions between Russia and China regarding the construction of the Power of Siberia 2 gas pipeline have reached an impasse, with Beijing demanding gas from Gazprom at domestic Russian prices, which are subsidized by the state, making exports economically unfeasible.
According to the Financial Times, which cites three informed sources, this price demand has caused significant delays. Additionally, China is not prepared to purchase the full capacity of the proposed pipeline, which is projected to transport 50 billion cubic meters of gas annually. Despite a March 2023 announcement of an agreement between Russian President Vladimir Putin and Chinese President Xi Jinping, no formal deal has been concluded. This deadlock reportedly led to Gazprom’s head, Alexey Miller, not accompanying Putin on a visit to China in May.
Gazprom’s reliance on the Chinese market has intensified since the collapse of the Nord Stream pipelines in 2022, which caused Russian gas exports to Europe to plummet to their lowest levels since the 1970s. This led to a 5.5% decline in national gas production, with Gazprom itself experiencing a 13% drop. For the first time in 25 years, Gazprom reported a net loss of 629 billion rubles in 2023, partially due to increased excess profit tax payments.
Despite Gazprom’s claims of record exports to China, the volumes remain relatively modest, with 22.5 billion cubic meters exported in 2023, compared to nearly 60 billion cubic meters lost via Nord Stream 1. Redirecting gas from Europe to China poses logistical challenges, as European supplies come from Western Siberian fields, whereas China is supplied from Eastern Siberian fields through the Power of Siberia 1 pipeline. The proposed Power of Siberia 2 pipeline could link these fields, potentially facilitating a smoother gas supply transition.
