Russia and China seek new gas route, “Siberia-2” becomes Putin’s pipe dream

With talks on a proposed Russian natural gas pipeline to China in limbo, Russian President Vladimir Putin wants to win back lost European business by sending natural gas to Central Asian countries and from there to the energy-hungry Chinese market.

“With Kazakhstan, repairs and upgrades would be significantly cheaper than the Siberian Force II, making it a much more attractive option and one that Beijing would likely accept,” said Chris Weafer, CEO of Eurasia-based strategy consultancy Macro Advisory. Newsweek.

Russia is eager to expand its foothold in China and other markets after losing most of its natural gas exports in Europe following its invasion of Ukraine in 2022. Weafer said business in Europe is unlikely to return to pre-war levels even after a peace agreement because both sides have learned their lessons from being too dependent on each other.

The outsized importance of the Chinese market to Russia has given it increased negotiating power, allowing it to buy Russian gas at a 28% discount from this year through 2028. Earlier this month, Russia’s state-run gas giant Gazprom, which runs the POS, posted its first loss in 20 years and sold at a discount.

Earlier this month, Putin concluded an official visit to China without a deal being reached for the second “Power of Siberia-2” pipeline. Many analysts, including Weafer, believe Beijing is waiting for Russia to agree to pay a larger share, if not the full cost, of the construction.

If approved, it will pump 50 billion cubic metres of gas per year to northeast China, on top of the 38 billion cubic metres of gas from the Siberian First Power Plant (POS), which is expected to reach full capacity this year.

As a result, Russia is turning to Central Asia as a destination for its own gas and as a cheaper alternative transit point for gas bound for China.

Weafer said Putin would eventually like to significantly increase gas sales to India, but for now “he has no choice but to use pricing to increase gas sales to China.”

“The two countries share a long border, the old Soviet infrastructure can be repaired and more gas can be transported through Kazakhstan. Selling it for a lower price than it can get from Europe or Turkey is an acceptable cost of expanding volumes and infrastructure,” he added.

Newsweek The foreign ministries of Russia, China and Kazakhstan were asked in writing for comment.

Russian state news agency TASS reported earlier this month that Moscow and Astana have already agreed on the route for such a pipeline.

“We want to make full use of our transport capacity. The roadmap has been signed. We will supply 35 billion cubic metres of gas to China per year,” Russia’s ambassador to Kazakhstan told TASS.

Russia also has a discounted contract with the Uzbek market for 12 billion cubic metres per year, and analysts expect it to sign another deal with Kazakhstan.

Kazakhstan and Uzbekistan each have significant natural gas reserves and export gas to China through the Central Asia-China Gas Pipeline.

But domestic demand in these countries is growing as their economies grow, and rising domestic consumption in the winter has tightened supplies, forcing them to halt gas deliveries to China last year.

“This happened last winter, which embarrassed Beijing a lot, so now China wants a more stable supply of Russian gas through these routes,” Weafer said.

But China wants more pipelines to be built in its Belt and Road Initiative partner countries in Central Asia.

“The Central Asia pipeline is seen as a foundational investment in China’s energy and geopolitical space. It is a supply channel with strategic value that outweighs commercial concerns,” a Chinese official familiar with state-run China National Petroleum Corp’s strategies told Reuters, adding that price negotiations were continuing.