There has been a strange atmosphere at recent top level meetings between ‘best friends’ China and Russia. It is not so much the elephant in the room as the pipeline running through it, with Moscow almost over-eager to talk about what has been billed as one of their most important joint economic projects, while Beijing has been doing its best to change the subject.
That project is the Power of Siberia 2 gas pipeline, which is supposed to carry 50 billion cubic metres (bcm) of natural gas a year from the Yamal region in northern Russia to China, by way of Mongolia. It was conceived more than a decade ago but has taken on a new urgency for Moscow after the invasion of Ukraine, with the Kremlin eager to double gas sales to China. It wants to compensate for the loss of sales to Europe, which used to take around 80 per cent of Russian gas exports. The planned capacity of the new pipeline is almost as much as Nord Stream 1, the pipeline under the Baltic Sea to Europe, which was damaged by explosions in 2022.
The Power of Siberia 2 is the most stark reminder of how self-interest drives China’s leaders
Statements following meetings between Russian and Chinese officials have become increasingly surreal, with Russia stressing progress towards a formal agreement and China spouting platitudes about friendship while avoiding the pipeline. Following a meeting between the countries’ two prime ministers in December, Interfax, the Russian news agency, announced that the two had ‘emphasised the importance of the project’. That appeared to be news to China’s Xinhua, which noted vaguely that, ‘pragmatic cooperation in various fields has developed in a sound and steady manner.’ Russia’s leader Vladimir Putin has spoken about the pipeline as if a deal is as good as done. At a summit with China’s president Xi Jinping in Moscow last year, Putin said ‘practically all parameters…have been finalised’. Xi avoided the subject.
The issues are two-fold and pretty fundamental: the price of the gas and who will pay for constructing the 1,616 mile pipeline, which has been estimated at $13.6 billion (£11 billion), but has been steadily rising. The uncomfortable reality for an increasingly desperate Moscow is that its negotiating position has weakened considerably since the invasion of Ukraine. China does not immediately need the gas, and for all the talk about deep and lasting friendship, Beijing is a tough negotiator, does not want to become too dependent on Russian energy and will always put its own interests first. China is also believed to have baulked at the huge expense of building extra gas transportation infrastructure on its own side of the border.
It is almost a year since Gazprom, Russia’s gas giant, which will operate the new pipeline, said it was finalising contract terms with China. It began a feasibility study in 2020, when Moscow’s negotiating position was stronger, and hoped to begin delivering gas in 2030. Other aspects of their discussions remain shrouded in secrecy. While Beijing has shown little public enthusiasm for Power of Siberia 2, Xi has championed the construction of a new pipeline from Turkmenistan, which is closer and dovetails better with China’s existing gas infrastructure. It has also competed vigorously for contracts for sea-born liquefied natural gas from the United States, Qatar and Australia. All of which considerably strengthens Beijing’s negotiating position with Moscow.
Russia’s existing gas pipeline to China, Power of Siberia, was launched in 2019, with an annual capacity 38 bcm. The 30-year contract is worth an estimated $400 billion (£315 billion), and Gazprom said earlier this month that it had set a new daily record, though without providing the figure. This pipeline comes from fields in Eastern Siberia, for which China is the only viable market. The Yamal region, from where Power of Siberia 2 is supposed to originate, historically served the European market, which is now effectively closed. China is now a monopsonist buyer – and it knows it.
In many respects, China’s foot-dragging on the new pipeline may seem surprising. After all, it has effectively bank-rolled Russia’s aggression in Ukraine through substantial expansion of trade. In the first 11 months of last year, trade between the two countries reached a record $218.2 billion (£170 billion), including technology of potential military use. Beijing has echoed Moscow’s justification for the war and shared its propaganda. China certainly has geopolitical interests closely aligned to those of Russia, but much of the trade expansion is out of hard-nosed self-interest as a time when China’s economy is stagnating. China’s rapid growth in car production, for instance, surpassing Japan as the world’s largest exporter last year, was driven by strong demand in Russia.
Moscow will no doubt be hoping that the latest flair-up of hostilities in the Gulf help to concentrate Chinese minds on the relative security of Russian pipelines compared with vulnerable tankers. Beijing’s negotiators will surely factor that in, but the Power of Siberia 2 is the most stark reminder of how self-interest drives China’s leaders, and just how far the balance of power between Russia and China has shifted in favour of Beijing.
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