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Xi is disrupting an important deal with Putin: China wanted to buy gas at Russia's domestic prices – FT

Darina GertsevaNews
China has set tough conditions for the Kremlin
China has set tough conditions for the Kremlin. Source: Created with the help of AI

The Russian-Chinese "Power of Siberia 2" project is facing difficulties due to China's tough demands. Now China wants to buy gas from Russia at its domestic prices, which makes such supplies unprofitable for "Gazprom". As a result, Russian dictator Vladimir Putin and Xi Jinping failed to agree on the construction of the "Power of Siberia 2" gas pipeline.

This underscores Russia's growing dependence on China in economic matters after the invasion of Ukraine, the Financial Times reports. The newspaper emphasizes that failure to agree on the terms of the project could be a serious blow to Gazprom, which has already suffered significant financial losses and depends on this gas pipeline for its survival.

According to the newspaper, Russia's attempts to conclude a major gas pipeline deal with China have already reached a deadlock due to Beijing's "unreasonable" demands on price and supply volumes. China has requested a price close to Russia's heavily subsidized domestic prices and is committed to buying only a small part of the pipeline's planned annual capacity of 50 billion cubic meters of gas. This poses significant financial and economic challenges for Gazprom, which relies on this project as the key to its survival.

The publication notes that Beijing's tough stance on "Power of Siberia 2" emphasizes Vladimir Putin's growing dependence on Chinese leader Xi Jinping in economic matters. In particular, approving the construction of this gas pipeline could change Gazprom's sorry state by linking the Chinese market to gas fields in western Russia that once supplied Europe. However, now that Gazprom's exports to Europe have fallen from 230 billion cubic meters per year to only 22 billion cubic meters in 2023, dependence on the Chinese market has become critical.

The impasse on the "Power of Siberia 2" deal led to Alexey Miller, the head of Gazprom, not going to Beijing with Putin. Instead, he traveled to Iran, even though his presence at the talks with China would have been extremely important. According to Tetyana Mitrova of the Center for Global Energy Policy at Columbia University, Miller's absence from the talks was "highly symbolic" and emphasizes the complexity of the situation in which Gazprom finds itself.

According to Alexander Gabuev, director of the Carnegie Russia and Eurasia Center in Berlin, Russia's inability to conclude a deal emphasizes that the war in Ukraine has made China a senior partner in relations between the two countries. China's need for imported gas by 2030 will be around 250 bcm, up from less than 170 bcm in 2023. However, by 2040, the gap between China's import demand and existing commitments will reach 150 bcm, meaning that Gazprom will have to accept China's terms, as Russia has no alternative land routes for gas exports.

China already pays Russia less for gas than its other suppliers. According to CGEP researchers, the average price is $4.4 per million British thermal units, compared to $10 for Myanmar and $5 for Uzbekistan. In the same years, Russia exported gas to Europe at a price of about $10 per million BTU. Thus, China receives significant economic benefits, which further complicates negotiations with Russia.

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