30-Year Gas Export Deal, Power of Siberia 2, Belatedly Inked Between Russia & China

Among the major agreements to come out of President Vladimir Putin’s official visit to China, hosted by President Xi Jinping this week (for the SCO conference and upcoming Chinese military parade, also to be attended by North Korea’s Kim), is the signing of a legally binding deal to construct and bring online the much-delayed Power of Siberia 2 gas pipeline.

Alexei Miller, chief executive of Gazprom, confirmed to state news agencies that a memorandum of understanding has been signed on the construction of the new, ambitious gas pipeline.

It will transit gas reserves in Russia’s West Siberia to northern China via eastern Mongolia, at an expected estimated supply of 50 billion cubic meters (bcm) of gas per year, Miller said, Interfax reports.

This is a three-decade long commitment and contract for the Power of Siberia 2. Miller further revealed that the price of gas transferred will be subject of a separate agreement.

Coinciding with this new deal, widely seen as an act of defiance aimed at that West and at a moment the US is threatening strong secondary sanctions on any country importing Russian energy, is that Gazprom will ramp up supplies to China via the existing Power of Siberia pipeline.

An industry executive and insider has underscored to CNBC that this sends a strong signal of the Russia-China-India desire to push back against Western economic bullying as BRICS countries forge ahead with their ‘multi-polar world’ platform:

“For the past decade, Gazprom has been pushing China to give the go-ahead for Power of Siberia-2, only to be met – until now – with positive but non-committal noises. So today’s signing of a MOU is a step forward for Gazprom,” Granville told CNBC by email.

“The fact that this has happened against the background of the fraught Ukraine war endgame, is a clear enough signal of China’s steady strategic backing for Russia as the lynchpin of the new multipolar order to which both these core Eurasian powers aspire,” Granville said.

Given the by and large loss of the European market, Moscow will be forced to sell gas at a lower than what Gazprom charges its European customers – no doubt part of the big appeal for Beijing – which could prove a big hurdle given the extreme cost and difficulty of constructing Power of Siberia 2 across a difficult and lengthy geographical terrain.

Mongolian President Ukhnaagiin Khurelsukh is also in Beijing, where he has held meetings with Putin and Xi, during which time nearly two dozen agreements were signed. Russian state media has hailed it as a Warning to West, and a beacon for the Global South…

Russia remains third-largest provider of liquified natural gas (LNG) to China, after Australia and Qatar. The current 3,000 km pipeline, Power of Siberia, went online in 2019 as part of a 30-year, $400 billion deal.

Interestingly, President Putin while in China has struck a positive tone anytime US pressure is brought up in the context of the Ukraine war and American-led sanctions regimen. Putin said this week that the Trump administration “is listening to us” – unlike the prior Biden administration.

“Now we see this mutual understanding, it’s noticeable,” Putin told Slovak President Robert Fico in a bilateral meeting in China. “We are very happy about this and hope this constructive dialogue will continue.”