Key facts
- A proposed natural gas pipeline linking Russia and China, dubbed Power of Siberia 2, is stalled due to a significant price disagreement.
- China is reportedly demanding a price of $50 per thousand cubic meters, while Russia is asking for around $250 per thousand cubic meters.
- Beijing has requested Moscow cease discussions on the pipeline under current terms.
- China's bargaining strength is bolstered by diversified energy sources, including domestic production and imports from Central Asia and LNG tankers.
- The deadlock occurs as Russia faces increased pressure from the war in Ukraine and the EU's phasing out of Russian LNG imports.
A crucial natural gas pipeline project between Russia and China, known as Power of Siberia 2, has reached a deadlock due to a substantial disagreement over pricing. Beijing has reportedly asked Moscow to halt discussions on the matter under the current terms, signaling a significant shift in the negotiation dynamic.
The proposed pipeline, intended to carry up to 50 billion cubic meters of gas annually from Russia's Yamal fields through Mongolia to China, is a high priority for Moscow, which is under pressure to export energy amid international sanctions and the European Union's commitment to phase out Russian LNG imports.
Sources indicate that China is demanding a heavily subsidized price of $50 per thousand cubic meters, a rate comparable to what Russian households pay domestically. Russia, conversely, is seeking approximately $250 per thousand cubic meters, a figure closer to previous export prices to Europe and current prices for Russian gas via the existing Power of Siberia 1 pipeline. China already imports Russian gas at $240 to $280 per thousand cubic meters and Central Asian gas at about $200 per thousand cubic meters.
Commentators suggest that China's strong bargaining position stems from its diversified energy sources. China's domestic gas output has been growing, and it has substantial pipeline imports from Central Asian countries like Turkmenistan, Uzbekistan, Kazakhstan, and Tajikistan, with a combined annual capacity exceeding 85 billion cubic meters. Additionally, the country receives a steady stream of LNG from Qatar, Australia, and Malaysia. This diverse supply strategy means Russian gas is not irreplaceable for Beijing.
The situation is further complicated by China's recent resumption of American LNG purchases, with the first US cargo arriving in over a year following a meeting between Presidents Xi Jinping and Donald Trump. This move underscores China's strategic flexibility in energy procurement.