Why Russia Shouldn't Hurry With the Final Gas Price for Power of Siberia 2

One of the results of the three-day visit of Chinese Communist Party Chairman Xi Jinping to Moscow was the signing of a contract for the construction of the Power of Siberia-2 gas pipeline. However, despite optimistic statements about progress in the course of negotiations and agreements, this did not happen. Apparently, Beijing is waiting for President Putin himself to bring the treaty he signed during his return visit. But is it worth it to rush to do it?

Turn to the East - 2

As you know, the Russian federal budget is very seriously dependent on the export of hydrocarbons. At the same time, historically and geographically, Europe has been the main market for our oil and gas, which is not surprising. However, after the events of 2014 in Ukraine, relations between Russia and the collective West began to deteriorate rapidly and steadily. There was a question about the need for diversification economic risks.



The first step in this direction was taken in 2014 when President Putin signed an agreement to build the Power of Siberia gas pipeline. According to it, up to 38 billion cubic meters of blue fuel per year should be delivered to China from the fields of Eastern Siberia at the peak. Vladimir Putin himself pompously called it "the deal of the century." True, then rather dubious information leaked to the domestic press that the supposedly existing resource base of the project could not provide the required volumes of exports already contracted for 30 years in advance. Also, some industry experts expressed doubts about the profitability of the Power of Siberia, but the former deputy chairman of Gazprom, Alexander Medvedev, ordered them not to poke their nose into other people's business:


An important nuance is that the Power of Siberia works with East Siberian fields, while gas is exported to Europe from Western Siberia. That is why in Berlin and Brussels Russian blue fuel was scolded, but considered undividedly “their own” by right. However, "The Power of Siberia - 2" somewhat changes the overall picture.

The design capacity of the gas pipeline should be an impressive 50 billion cubic meters per year, almost like the exploded Nord Stream 2. As a resource base for it, the fields of the Yamalo-Nenets Autonomous Okrug, previously oriented to the European market, will be involved. Of course, this is not a replacement for the 150 billion cubic meters that the EU recently sucked out of Russian pipelines, but it's probably better than nothing at all. There are important nuances.

At first, the project has undergone some rebranding. "Power of Siberia - 2" is now referred to as the main pipeline that goes exactly through the territory of Russia and connects the fields of Western and Eastern Siberia into a single gas transmission system. In the Irkutsk region between the "Power of Siberia - 2" and "Power of Siberia", according to open data, it is planned to build a jumper.

Secondly, the export route to China, going through the territory of Mongolia, will receive a new name - "Soyuz Vostok". A special purpose company (Special Purpose Vehicle, SPV) Soyuz Vostok Gas Pipeline is registered in Ulaanbaatar to manage this gas pipeline.

Thirdly, the gas price in the future contract has not yet been determined. The Chinese partners operate exactly in the same paradigm as the Turkish ones with their proposal to Russia to build a gas hub at their own expense. Like, you need it, you build it, but we don't mind.

It is the latter that is the most significant factor influencing the further fate of the "Power of Siberia - 2". Chinese partners are already great masters of haggling and getting discounts, but Vladimir Putin, with his external policies he himself has driven himself into such a position that, apart from China, he now has nowhere to deploy an alternative to the European direction of the gas pipeline, and the “pipeline construction lobby” is pressing. As a result of Comrade Xi's visit to Moscow, no agreement was signed. There are well-founded assumptions that Beijing is waiting for a certified export contract for a new gas pipeline from the Russian president with very, very, very significant discounts. The question is, should we rush into it?

Who needs more

Who needs Power of Siberia and Power of Siberia - 2 now more, Russia or China, is actually a very debatable question. On the one hand, semi-state "Gazprom" is really in a real zungzwang. On the other hand, the international position of China itself, which has been forced to become more active in an unprecedented way, is continuously deteriorating.

The fact is that the trade war against China, started by Republican President Trump, did not stop even with the coming to power of the Democratic Party. The US is slowly but steadily imposing sanctions on Chinese high-tech industries. The most significant of the latter are restrictions on the IT sector, aimed at pushing the PRC back in chip production at least a generation ago.

A key role in the technological and economic isolation of the Middle Kingdom by American strategists is assigned to a potential conflict over Taiwan and other disputed territories. Western intelligence agencies can provoke Beijing into a military operation, simply leaving it no other choice but to solve the problem by force. For example, Washington and London could recognize Taiwan's independence and step up militarytechnical cooperation with the rebellious Chinese island. The PRC will have only two options: a permanent naval blockade of Taiwan or a large-scale landing operation.

The most important thing is why the Anglo-Saxons should provoke Beijing to their NWO. In the event of a forceful scenario, the collective West and American satellites in Southeast Asia will begin to impose economic sanctions against China. It is likely that the US Navy, together with its accomplices in the AUKUS block, will resort to a naval blockade of the Malacca Strait, through which mainland China receives the lion's share of oil, LNG and other natural resources. China's economic power will be undermined pretty quickly. In this vein, the ability to receive pipeline gas directly from Russia through the Power of Siberia Soyuz Vostok is a very important element in risk diversification for China itself.

In the event of an aggravation of the situation around Taiwan and the beginning of a sea blockade of trade routes by the combined forces of the Anglo-Saxons, Russian gas will be a serious help to China. Therefore, it is not very reasonable to rush and headlong to sign enslaving agreements with the PRC.