The much-anticipated "Power of Siberia 2" gas pipeline deal between Russia and China has encountered a significant setback due to a stalemate in negotiations. This project, seen as a lifeline for the Russian economy, would link the gas-rich fields of western Russia to the Chinese market, potentially revitalising Russia's struggling energy sector.
The main point of contention is China's demand for gas prices nearly as low as Russia's heavily subsidised domestic rates, without a commitment to import large volumes through the planned 50 billion cubic meter pipeline. This has caused friction between the two nations, with the Kremlin describing China's demands as "absurd."
The failure to secure this deal has significant implications for Russia's state-owned Gazprom, which suffered substantial losses last year due to declining sales in Europe. The pipeline was seen as a crucial step towards diversifying Gazprom's customer base and reducing reliance on the European market.
While Russia remains optimistic about the pipeline's future, the lack of progress in negotiations has raised concerns. Gazprom CEO Alexei Miller's absence from President Putin's recent visit to Beijing has been interpreted as a symbolic indication of the difficulties faced in reaching an agreement.
The pipeline deal was part of a broader set of demands made by Putin to Chinese President Xi Jinping, including increased Chinese banking activity in Russia and a boycott of the upcoming Ukraine peace conference. While China has agreed to skip the conference and is reportedly considering increased financial cooperation, the pipeline deal remains unresolved.
Experts suggest that the war in Ukraine has shifted the power dynamics between Russia and China, with China emerging as the dominant partner. While China could benefit from Russian natural gas as a secure energy source, it is seeking a deal that offers exceptionally low prices and flexible terms.
The lack of alternative land routes for Russian gas exports means that Gazprom may eventually have to concede to China's demands. However, failure to reach an agreement would deal a significant blow to Russia's energy ambitions and economic recovery efforts.
