China risks energy crisis without Power of Siberia 2 contract
By Tural Heybatov
China wants to pay for the gas supplied through the Power of Siberia 2 pipeline at a price almost equivalent to domestic fuel prices in Russia, The Financial Times writes, citing its sources.
The authors of the publication indicate that the pipeline construction deal would allow Gazprom to improve its position, as the company ended last year with a record loss of almost 630 billion rubles. Currently, the Chinese side is buying Russian gas cheaper than from other suppliers, but Beijing is expecting an even greater discount.
In an interview with News.Az, Igor Yushkov, a leading analyst at the National Energy Security Fund and an expert at the Financial University under the Government of the Russian Federation , said that the article mentions that during Putin's visit to China, the contract was not concluded, but this was clear even at the preparatory stage when the delegation's composition was announced. At that time, Presidential Assistant Ushakov announced who would travel with Putin to China, and Alexei Miller was not on that list. Therefore, the contract could not have been signed in the absence of Gazprom's head.
"Miller was negotiating in Iran at that time. The fact that he did not go to China already made it obvious that the contract for the Power of Siberia 2 would not be signed. If the article had been published when Ushakov announced the delegation's composition, the publication would have been relevant," he said.
"It was expected that during Putin's visit, just like in 2014, a contract for the Power of Siberia 2 would be signed, but due to Miller's absence from the delegation, this did not happen. If the publication had come out then, it would have been understandable. But when the article is published now and states the obvious that Russia and China did not reach an agreement, it is no longer news," the expert said.
The novelty in the article is the indication that China wants gas at domestic Russian prices, noted Yushkov.
"Obviously, the buyer wants low prices, and the seller wants high prices. This is why we have been unable to agree on this contract for over 10 years. China believes that time is on its side: the worse Gazprom's situation in Europe, the more accommodating Russia will be on the price for Beijing.
It is expected that supplies will decrease by another 15 billion cubic meters due to Ukraine's refusal to extend transit in 2025. Gazprom will have nowhere to put the gas, and it will reduce production by another 15 billion cubic meters. However, the Russian position is that time is not on China's side because Beijing needs not just volumes of gas but reliable supplies," he said.
"The more time passes, the faster China develops and its conflict with the US increases. The United States perceives China as a global competitor in the world market, and the confrontation is constantly growing. If it reaches an acute phase, the first thing the US will do is cut off hydrocarbon supplies to China: LNG from Qatar, the US, and Australia.
It does not even need to physically block LNG supplies. It is enough to prohibit shipments from the US and impose sanctions on LNG supplies to China. Australia, as a Western country, will voluntarily comply with these sanctions. If we sign the Power of Siberia 2 agreement now, it will take several more years to build the pipeline, and it will gradually reach its design capacity. Therefore, the contract needs to be signed now so that China will not suffer later. When China needs gas, and its shipment from the US or Australia is under threat, it will be too late to sign the contract, as pipeline construction will take several years. The Russian position is based on these theses," the expert noted.
"The gas contract is needed not only by us but also by China. The parties' arguments boil down to the fact that if gas is at a minimum price, China will take it. Therefore, the parties have remained on such positions for a long time, and the current publication may not be accidental. It may be aimed at discrediting the contract if it is signed. Deputy Prime Minister Alexander Novak has already stated that Russia is close to signing a contract with China," he added.
"If the contract is signed, the publication will claim that China pressured Gazprom and agreed on domestic Russian prices. However, in reality, no one discloses commercial secrets, including gas prices. This applies to Russian, Asian, and American companies," Yushkov said in conclusion.
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