Russia has once again brought up a natural gas project with China, but no concrete agreement has emerged. Chinese President Xi Jinping and Russian President Vladimir Putin held a summit on August 31 in Bishkek, Kyrgyzstan. Ahead of the meeting, Russia emphasized the 'Siberian Power 2' project, which aims to export Russian natural gas to China.
Yuri Ushakov, an aide to the Russian president on foreign policy, told reporters on August 28 that Putin and Xi would discuss the possibility of finalizing agreements related to the Siberian Power 2 project during their summit. The announcement of the project name just three days before the meeting led to speculation that a final deal might be reached. However, the joint statement following the summit did not mention the Siberian Power 2 project, resulting in another 'no deal' outcome following Putin's visit to China in May.
The Siberian Power 2 project involves a 2,600-kilometer pipeline that will transport gas from Russia's Yamal region through Mongolia to China, with a target supply of up to 50 billion cubic meters of natural gas annually. Currently, through the existing Siberian Power 1 pipeline, Russia exports 38 billion cubic meters of natural gas to China each year.
China and Russia have been collaborating on the Siberian Power 2 project since 2020. In September of last year, the two countries signed a legally binding memorandum of understanding regarding the construction of Siberian Power 2 and a 30-year gas supply agreement. However, they have yet to agree on the price for natural gas supply, which has stalled the project.
The price proposals from both sides differ significantly. According to Russian media, Russia has proposed a price of $250 to $300 per 1,000 cubic meters, while China has offered $50, which is the domestic price for natural gas in Russia. The current price for natural gas that Russia supplies to China is estimated to be around $258.
From a pricing perspective, Russia's offer appears relatively reasonable, while China's demand seems excessively low. However, the context changes the calculations. Following the war in Ukraine, Russia has lost its European market and is struggling to find buyers for the natural gas extracted from the Yamal gas field. The success of the Siberian Power 2 project is crucial for Russia to secure a long-term and stable cash flow.
On the other hand, China has less urgency. It has secured multiple supply sources, including pipelines from Central Asia and Myanmar. As the world's largest importer of natural gas, China has diversified its supply options. Therefore, it does not feel compelled to rush into a contract at Russia's desired price. Instead, it may be advantageous for China to observe how much lower Russia can go in negotiations. Ultimately, China is maximizing its national interests while responding to Russia's desperation.
China and Russia are strengthening their strategic cooperation against a U.S.-led international order. However, their strategic partnership and economic interests are separate issues. While China needs Russia, it is not obligated to purchase gas at the prices Russia demands. Although China's low price proposal may upset Russia, the latter cannot afford to sever ties with China for national interest reasons. Similarly, China requires Russia for its own interests but has no reason to rush negotiations on natural gas prices.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.