Explainer: Does China Need More Russian Gas Via the Power-of-Siberia 2 Pipeline?

(Reuters) — Russian President Vladimir Putin and Chinese leader Xi Jinping met in Moscow for two days of talks which ended Tuesday, during which they discussed a major new infrastructure project, Power-of-Siberia 2, to deliver gas to China via Mongolia.

Putin said Russia, China and Mongolia had completed "all agreements" on finishing the pipeline to ship Russian gas to China, and that Russia will deliver at least 98 billion cubic meters (Bcm) of gas to China by 2030, although a subsequent Russian statement said pipeline details still need to be resolved.

Russia proposed the route years ago but the plan has gained urgency as Moscow looks to Beijing to replace Europe as its major gas customer.

However, China is not expected to need additional gas supply until after 2030, experts say.

What Is the Power-of-Siberia 2 Pipeline?

The proposed pipeline would bring gas from the huge Yamal peninsula reserves in west Siberia to China, the world's top energy consumer and a growing gas consumer.

The first Power-of-Siberia pipeline runs for 3,000 km (1,865 miles) through Siberia and into China's northeastern Heilongjiang province.

The new route would cut through eastern Mongolia and into northern China, according to a map by Russia's Gazprom.

Gazprom began a feasibility study on the project in 2020, and has aimed to start delivering gas by 2030.

The 2,600-km pipeline could carry 50 billion cubic meters (Bcm) of gas a year, slightly less than the now defunct Nord Stream 1 pipeline linking Russia to Germany under the Baltic Sea.

What Did Xi And Putin Say About The Pipeline?

Before Xi's visit, Putin referred to the Power-of-Siberia pipeline as "the deal of the century."

But a joint statement after their talks said only that the parties involved "will make efforts to advance work on the study and approval" of the pipeline. However, official accounts of Xi's statements issued after the meetings do not mention the pipeline.

"We don't really think it's finalised yet, there are still lots of finer details to be hammered out," said Wang Yuanda, China gas analyst at data intelligence firm ICIS.

"Russia is probably more desperate to sell gas than China needs at the moment."

What Does Mongolia Say?

When Putin and Xi met in September with Mongolian President Ukhnaagiin Khurelsukh, Khurelsukh said he supports the construction of oil and gas pipelines from Russia to China via Mongolia, adding that its technical and economic justification should be studied.

Mongolian Prime Minister Oyun-Erdene Luvsannamsrai told the Financial Times in July that he expected Russia to begin construction on the pipeline within two years, but added that the final route through Mongolia was not yet decided, according to the newspaper.

Does China Need More Russian Gas?

Gazprom already supplies gas to China through the first Power-of-Siberia pipeline under a 30-year, $400 billion deal, which was launched at end-2019.

Expected to supply22 Bcm of gas in 2023, it will deliver increasing volumes before reaching full capacity of 38 Bcm by 2027.

In February 2022, Beijing also agreed to buy gas from Russia's Far East island of Sakhalin, which will be transported via a new pipeline across the Japan Sea to China's Heilongjiang province, reaching up to 10 Bcm a year around 2026.

Meanwhile, China is negotiating a new pipeline - Central Asia–China Gas Pipeline D - to source 25 Bcm of gas annually for 30 years from Turkmenistan via Tajikistan and Kyrgyzstan.

Additionally, China has long-term contracts with Qatar, the United States and global oil majors for LNG supplies. It imported 63.4 million tonnes of the chilled fuel last year.

"The original target is for China to import 38 Bcm of Russia gas by 2025. Now Russia is saying this will reach 98 Bcm by 2030. That is a very big jump, so it pays to be slightly cautious on that," said Wang, the analyst.

China will also be wary of finding itself in a similar position to Europe if it becomes more reliant on Russia, he added.

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