The Financial Times (FT) cited an insider and reported on the 2nd that Russian President Vladimir Putin visited China last month. However, due to China’s excessive demands, both countries failed to finalize the Power of Siberia 2 gas pipeline deal.
It was speculated that Chinese President Xi Jinping is leveraging Putin’s precarious position due to Western sanctions resulting from the Ukraine war.
Putin, who has begun his fifth term in office, sought to finalize a gas pipeline construction deal during his two-day visit to China starting May 16 but was unsuccessful as negotiations fell through. According to sources, this was due to China’s excessive demands regarding gas supply volume and price. China expressed its willingness to buy gas close to Russia’s very cheap domestic price, which includes subsidies. They also stated China would only purchase a small fraction of the planned annual transport capacity of 50 billion cubic meters for Power of Siberia 2.
This is expected to deal another blow to Gazprom, Russia’s state-owned energy company. Despite Gazprom previously selling gas to Europe at high prices to subsidize domestic markets, these channels have now been blocked due to Western sanctions following Russia’s invasion of Ukraine.
Gazprom’s European exports, which averaged 230bcm annually over the past ten years before the Ukraine war, fell to 22bcm last year and are expected to decrease further this year. Gazprom had its largest deficit in the last 25 years, recording a net loss of 629 billion rubles (about $8.6 billion) last year.
*bcm=billion cubic meters
As compensation for the loss, Russia has repeatedly mentioned that an agreement on the Power of Siberia 2, an extension of the Power of Siberia gas pipeline completed in 2019, will be reached soon with China. Despite hoping for construction to begin this year, this goal was not met.
The FT indicated that may be Putin becoming more economically dependent on Xi due to the invasion of Ukraine. There is also a perspective that China has gained the upper hand in bilateral relations.
Alexander Gabuev, Director of the Carnegie Russia Eurasia Center, explained, “The fact that Russia has no alternative land route for gas exports means Gazprom will likely have to accept China’s terms,” and “China sees time as being on their side and seems to be waiting for Russia to offer the best conditions.”
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