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Mongolia’s government has excluded the Power of Siberia-2 natural gas pipeline from its spending plans for the next four years, signaling potential delays or even cancellation of the project.
Stalled negotiations between Russia and China over pricing and supply levels, coupled with China’s increasing focus on renewable energy and diversification of energy sources, have contributed to the pipeline’s uncertain future.
While Russia seeks to pivot its energy exports towards China amid strained relations with the West, China appears to be in a stronger bargaining position and is exploring alternative energy projects.
Mongolia’s government voted not to to include the Power of Siberia-2 natural gas pipeline that connects Russia to China through its territory in its spending plans for the next four years, a sign that the megaproject may be on hold.
Finding Perspective: Mongolia’s new coalition government voted on August 16 for its action program for its four-year term and notably did not include the 2,594-kilometer pipeline, meaning they don’t expect the ambitious project to begin construction during that span.
While the bulk of the energy project rests between Beijing and Moscow reaching an agreement, Mongolia would need to be involved in construction and transmission fee negotiations.
Power of Siberia-2, which is a joint project between the China National Petroleum Corporation and Gazprom, would take at least five years to build and would look to bring gas from the huge Yamal Peninsula reserves in western Siberia to China.
Much of these reserves were originally intended to be sold to the European Union, but Russia’s full-scale invasion of Ukraine has left Moscow looking for a new market in China, the world’s largest consumer of natural gas.
But Beijing currently has no particular incentive to agree to the new pipeline, and there have been ongoing disputes and tough negotiations between China and Russia over price and supply levels.
In June, the Financial Times newspaper, citing “people familiar with the matter,” reported that talks are frozen over what Russia sees as China’s unreasonable demands.
What’s Next? The decision by Mongolia’s government is seen by some analysts as the latest sign that the pipeline is facing setbacks.
“It’s premature to declare the project over, but the omission signals significant challenges,” Aleksei Chigadaev, a China expert and former visiting lecturer at the Higher School of Economics in Moscow, told me.
Moscow’s bargaining power with its more economically powerful neighbor has weakened over the course of the war in Ukraine, and questions remain over Gazprom’s ability to underwrite such a complicated venture.
The natural gas pipeline, which would bring gas to northern China, is also uncertain because it faces competition from China’s growing shift toward renewable energy and Beijing’s wider strategy to avoid being too dependent on any one exporter.
“North China’s access to [global] liquefied natural gas (LNG) markets is expanding, and global LNG markets will likely remain oversupplied for the rest of the decade,” Joseph Webster, a senior fellow at the Atlantic Council, told me.
“Additionally, north China can squeeze out incremental volumes from domestic production and the existing lines of the Central Asia-to-China [pipeline].”
Why It Matters: Approval for the pipeline would transform Gazprom’s current fortunes by tying it further to a massive consumer market, but Beijing’s tough stance also underscores how Russia’s invasion of Ukraine has left President Vladimir Putin lacking leverage.
Concluding a deal on a project as expansive as Power of Siberia-2 is incredibly complex, but China clearly believes it is holding better cards.
Beijing also has alternatives to pursue. Xi has also offered support for the construction of the so-called Line D pipeline, which would be the fourth to bring Turkmen gas to China.
As Chigadaev explains, the Turkmen pipeline offers some clear advantages.
“The pipeline will be significantly shorter than the Russian one, and its construction will be entirely controlled by China, including investments, the construction process, and operations,” he said. “Negotiating with Turkmenistan’s political leadership is also easier — it has an even higher level of authoritarianism than Russia and a simpler economy.”
Still, as Webster notes, Power of Siberia-2 and Line-D feed different parts of China and don’t necessarily cancel the other out, although “China’s future and even current natural gas demand is a big analytical blind spot.”
“Line D is believed to service southern China, which would place it in only indirect competition with Power of Siberia-2, which would deliver gas to customers in northern China,” he said. “Line D is more likely to compete against American and Australian LNG. But the routes of Line D and Power of Siberia-2 aren’t finalized yet. Things could change.”
Three More Stories From Eurasia
Li Qiang In Russia and Belarus
Chinese Premier Li Qiang arrived on August 20 in Moscow on a three-day official visit where he is expected to hold talks with his Russian counterpart Mikhail Mishustin and Putin.
The Details: The visit will focus on bilateral ties and economic cooperation between China and Russia as part of a regular diplomatic track created for both countries’ prime ministers.
Ahead of the visit, Chinese Foreign Ministry spokeswoman Mao Ning said Li planned to “exchange in-depth views on practical cooperation in bilateral relations and issues of common concern” in talks with Mishustin.
Neither the Chinese or Russian side mentioned the war in Ukraine in their previews, but Li’s trip is the first from a Chinese official since Ukraine’s incursion into Russian territory.
Li will then depart Moscow for Belarus, where he’ll meet with Belarusian Prime Minister Roman Golovchenko and strongman Alyaksandr Lukashenka.
Belarus relies heavily on Russia for political and financial support but has also looked to balance that dependence with closer ties with China.
In July, Belarus became the 10th member of the Shanghai Cooperation Organization and also hosted China for military exercises in the western part of the country, some 5 kilometers from the Polish border.
Kazakhstan’s Nuclear Energy Bid
Kazakh officials held their 20th public discussion in the country about building a new nuclear power plant on August 20, my colleague Asemgul Mukhitkyzy from RFE/RL’s Kazakh Service reports.
What You Need To Know: The most recent public forum was held in the capital, Astana, and came before a possible national referendum on this issue.
The discussion tour includes officials and nuclear energy experts and are partly held as part of an effort to raise public awareness, dispel myths and misinformation about nuclear power, and quell any safety or environmental concerns from having another plant in the country.
Kazakh officials have not yet said who will be building the plant, but the government is reportedly considering proposals from French, South Korean, Chinese, and Russian companies.
Diluting Tajikistan’s China Debt
Tajik Deputy Finance Minister Yusuf Majidi says China’s share of Tajikistan’s external debt is decreasing each year, RFE/RL’s Tajik Service reports.
What It Means: Speaking at a recent press conference, Majidi said Tajikistan’s total debt owed to China is $1.5 billion and Dushanbe has paid back $610 million already.
He added this leaves Tajikistan’s remaining debt owed at around $850-890 million and the government has been taking steps to limit its debt exposure.
“China’s share in the structure of Tajikistan’s external debt is decreasing. After 2018, we have only received grants from China,” Majidi explained to reporters.
Tajikistan’s growing financial dependence on China has been a major source of criticism for the Tajik government, with China owning half of the country’s foreign debt and being its main source of external investment.
Added to those financial concerns, all of the terms of loan contracts agreed to with China have not been made public and have sparked fears that Tajikistan’s inability to repay its loans could lead to offering land or other concessions in exchange for debt relief.
According to the Finance Ministry, the grace period for a number of loans owed to China’s Export-Import Bank will stop at the end of 2025 and Dushanbe will need to pay off a percentage of its Chinese-owned debt.
Across The Supercontinent
Yuan Listed: In a move designed to boost cross-border trade with China, the National Bank of Kyrgyzstan announced it will begin publishing the official exchange rate of the yuan against the Kyrgyz som starting on September 1.
Wheat Woes: Kazakhstan has suspended wheat exports to China for an undetermined period following unilateral tariff changes by Beijing, the Kazakh Ministry of Agriculture said in an August 7 statement.
The Not ‘For You Page’: TikTok’s algorithm promotes the Chinese government’s narratives on hot-button issues such as Tibet, Taiwan, and the Uyghurs while suppressing content critical of Beijing, a new study has found.
A Dawn Raid And A Ruling: Legal claims brought by the Chinese firm Nuctech that European Commission raids in April to search for evidence of state subsidies were illegal have been thrown out by a court in Luxembourg.
Nuctech is a maker of body and baggage scanners for airports and ports and they sued the commission in June over the raids being unlawful. The ruling by the court could have a wider effect on Chinese businesses in Europe and the case is the most high-profile use of the European Commission using its foreign subsidies regulation.
One Thing To Watch
Azerbaijan officially applied to become a member of BRICS, the group of emerging-market nations led by China and Russia that also includes Brazil, India, and South Africa as founding members.
The country’s Foreign Ministry made the announcement on August 20. Azerbaijan is the latest applicant to BRICS, which has consisted of just five members for years until it expanded with the inclusion of Iran, the United Arab Emirates, Ethiopia, and Egypt in January.
The development also comes after Azerbaijan signed a strategic partnership agreement with China on July 3 on the sidelines of the Shanghai Cooperation Organization summit.
The post Geopolitical Shifts Cast Shadow on Russia-China Gas Pipeline appeared first on Energy News Beat.
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