China is dragging its heels on committing to investments into the Power of Siberia 2 gas pipeline as it pushes for deeper discounts for Russian gas, reported The South China Morning Post on November 27.
According to a source in Moscow, China expects Russia to shoulder the entire cost of the multibillion-dollar pipeline project while seeking deeper cuts in gas prices.
The discount for Chinese gas imports is set to rise to 46% next year, with gas from the Power of Siberia priced at $271.6 per thousand cubic metres, compared with $481.7 for Turkey and Europe, Bloomberg reported in September, citing Russian government documents. However, China is pushing for even steeper concessions. "In terms of construction, [Beijing] wants to make sure that they have no risks and no costs. Russia is the side that foots the entire bill," the source stated.
Gazprom's ability to fund this new megaproject is uncertain, which the Kremlin desperately needs as it hunts for new customers for the gas it used to sell to Europe. In 2021, Russia sent some 150bn cubic metres of gas to Europe. This year exports are expected to fall to circa 25 bcm. 70% of Russia’s gas pipeline export infrastructure runs to the west; however, experts say it will take at least a decade to reorientate the pipelines to the booming Asian markets in the east. The energy giant reported a net loss of RUB1 trillion this year due to severed gas connections to European countries, leading to significant cash deficits. Gazprom had to deplete two-thirds of its cash reserves, leaving about RUB700bn of the pre-war RUB2 trillion cache by July 2023.
China is famously slow to agree on gas prices and, cut off from its European market, the Kremlin has little leverage in the negotiations. The first deal to supply gas via the Power of Siberia 1 pipeline took about a decade to negotiate and the details of the price deal have never been made public.
Despite financial constraints, Russian President Vladimir Putin faces significant pressure to proceed with the pipeline. Due to the curtailing of European exports, Gazprom has been compelled to reduce production by a quarter – an unprecedented cutback in its history.