The construction of the Kremlin’s long-planned Mega-pipeline linking Russia’s western gasfields to China will be delayed, according to the Prime Minister of Mongolia. This is a blow for Moscow’s plans to secure new markets for the gas that it sold previously to Europe.
Moscow has prioritized the so-called Power of Siberia 2 pipe, which will traverse Mongolian land, for over a decade. However, its importance has increased since Europe cut back on Russian gas imports in response to a full-scale invasion of Ukraine by 2022.
Luvsannamsrain oyun-Erdene , the Mongolian prime minister, told in a previous interview that he expects construction to begin on the 3,550km pipeline by 2024, including 950km of it through Mongolian territory. When asked if the partners would stick to this timetable, he replied that Russia and China have not yet agreed on crucial details of the mammoth project.
Oyun Erdene, in an interview with Oyun, said that the two sides need more time to conduct more detailed economic studies. He added that the record global gas prices over the last two years have complicated negotiations. The Chinese and Russian sides still have to do the calculations and estimates and are working on economic benefits.
Alexander Novak, deputy prime minister of Russia, wrote Thursday in the state-backed Energy Policy magazine that construction timing will be finalised once binding agreements are signed with Chinese partners.
Xi Jinping, the Chinese president, and Russian President Vladimir Putin met at least two times last year. However, while Russia has continually stressed its readiness to launch PS-2 (the second phase of the program), Beijing has remained conspicuously quiet.
China already receives Gas The first Power of Siberia Pipeline, which started operating in 2019, will transport gas from eastern Russia. The pipeline carried about 23 billion cubic metres of natural gas in 2018. It is expected to reach its full capacity of approximately 38 bcm by 2025.
PS-2 will bring 50 bcm more gas from the Yamal Peninsula in western Siberia to China, a field that previously served Europe. Gazprom, the state-owned Russian company, began a feasibility study in 2020 for the project and hopes to have the pipeline operational by 2030. China is hoped to replace Europe as its largest gas export market. Europe used to purchase more than 150 billion cubic meters of Russian gas per year. However, since the February 2022 invasion, this number has decreased.
Sergey Vakulenko is a former strategist for Gazprom and senior fellow of the Carnegie Endowment for International Peace. He said that Russia would likely seek better financial terms with China than what it achieved in the PS-1 agreement, which was signed in 2014, when global gas prices had been much lower.
Vakulenko’s analysis, based on Chinese government data, suggests that Russia receives significantly less money than Turkmenistan and Uzbekistan who also provide gas to China.
“On the one hand, it’s obvious that China should get this gas. He said that Russia has stranded natural gas in large quantities and wants better terms.
China’s foreign ministry did not comment directly on the negotiations but said that natural gas is an important aspect of Sino-Russian energy co-operation.
In a press release, the ministry stated that “both sides have consistently carried out co-operation in natural gas on the basis of mutual respect and reciprocal benefit.” Gazprom did not reply to any requests for comments.
Wei Xiong is a senior analyst at Rystad in Beijing. He said that the local industry in China still relies on PS-2 to begin operations in 2030 in order to meet growing Chinese demand.
She said that although prices for piped gas have increased over the last couple of years, the price is still lower than the LNG imports, which arrive in China via boat from countries such as Australia and Qatar. “China needs to diversify its gas supply in the long run. That is an important factor.”
Oyun Erdene stated that he met with the Russian and Chinese Prime Ministers in Bishkek, the capital of Kyrgyzstan in October. “We’re still in talks with these two sides, and we’re ready to begin construction as soon as they are ready.”
Mongolia, which lies between China and Russia and is a landlocked country, has worked to encourage foreign investment to diversify the economy of Mongolia and to serve as a buffer to Beijing and Moscow. In June, it signed a tripartite agreement with the US as well as the Republic of Korea in order to work together on areas such energy and mining security.
The UK’s Rio Tinto operates Mongolia’s largest copper mine Oyu Tolgoi, which is the biggest foreign direct investment. France’s Orano, backed by the French state, is working to develop the first uranium mining in Mongolia.
“We are always in favor of co-operation with other countries,” Oyun Erdene said, after making official visits to Beijing and Washington 2023.