China did not sign deal for further Russian gas supplies at summit

Chinese officials did not sign a deal on further Russian gas supplies or the construction of the Power of Siberia 2 pipeline. The Moscow Times reported this yesterday. Kremlin spokesman Dmitry Peskov said the pipeline project was due to be discussed on Tuesday in Beijing at a summit devoted to the so-called New Silk Road. The Russian delegation included Deputy Prime Minister Alexander Novak, who oversees the energy sector, Gazprom chief Alexei Miller and Rosneft chief Igor Sechin. Nevertheless, Chinese President Xi Jinping's approval could not be secured, the newspaper reported.

During President Xi's visit to Moscow in the spring, Putin said that the Power of Siberia 2 pipeline project was at an „advanced stage of preparation“. At the time, he promised China deliveries of 100 billion cubic metres of Russian gas a year, five times more than the Russian gas giant Gazprom currently supplies to the country. But the Chinese president did not mention gas in the final press statement. The joint communiqué refers only to increased cooperation in the energy sector. No documents on the Power of Siberia 2 project will be signed, Peskov told the TASS news agency.

Gazprom needs another deal with China. After losing the European market following Moscow's invasion of Ukraine, the company cut its commodity exports to their lowest level since the final years of the Soviet Union and reduced production by almost a third. From July 2022 to the end of June this year, the company reported a net loss of more than one trillion rubles (around CZK 239 billion) and spent two-thirds of its cash reserves to cover losses and cash shortfalls, The Moscow Times reported.

Russia is expected to transport about 22 billion cubic metres of natural gas to China this year via the Power of Siberia 1 pipeline, which began operating in 2019. This volume, however, would replace only one-eighth of Gazprom's former exports to Europe, which peaked at 170 to 180 billion cubic metres a year.

Gazprom's gas price for China is almost half the price charged to the EU and Turkey: USD 271.6 per thousand cubic metres, compared with USD 481.7, according to materials accompanying the draft Russian Federation budget for 2024.

„Any notion that contracts with China provide new sources of revenue for Putin's military coffers is a bad one for China,“ said Alexander Gabuev of the Berlin-based Carnegie Russia Eurasia Center, commenting on the possibility of new large-scale commodity contracts.

Mikhail Krutikhin of the RusEnergy consultancy does not rule out China eventually agreeing to the Power of Siberia 2 pipeline project if it can negotiate „very good prices“. But, he said, it will take at least ten years to build and bring the pipeline into operation, and it will not replace the lost supplies to Europe.

Russia's dependence on China is growing, said Filipp Ivanov of the US non-profit organisation Asia Society. Despite all the statements about a strategic partnership, Chinese investment in Russia remains disproportionately modest, he noted. „Chinese companies are concerned about political risks, secondary sanctions, corruption and the overall unpredictability of the Russian market,“ he said.

Power of Siberia 1 is the main route for transporting Russian gas to China. The pipeline is expected to reach its designed capacity of 38 billion cubic metres in 2025.

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