Russia Sends 20 People Delegation for Negotiations in Beijing as China Wants to Pull the Plug Off $13 Billion ‘Power of Siberia 2’ Gas Pipeline

Russian President Vladimir Putin surprised China by sending a 20-person delegation to Beijing for negotiations. This information was shared by political experts from China.

The Russian delegation, consisting of 20 members, traveled to China some time ago. Officially, they were to participate in a meeting of the intergovernmental commission on energy cooperation between Russia and China. The Russian delegation was led by Deputy Prime Minister Alexander Novak.

Russia is counting on a planned new pipeline to China as it seeks to make up for lost gas sales in Europe, but industry insiders see major risks around the project and question whether it will justify the huge costs.

Russia has been in talks for years about building the Power of Siberia-2 to carry 50 billion cubic metres of natural gas a year from the Yamal region in northern Russia to China via Mongolia – almost as much as the now idle Nord Stream 1 pipeline under the Baltic Sea that was damaged by explosions last year.

According to Chinese experts, China usually warmly welcomes Russian guests, doing everything possible to make them feel at home. However, this time, the Russian representatives cannot be assured that they will enjoy their visit, as reported by Sohu according to AB News.

“The Chinese frowned, and the Russian Deputy Prime Minister felt out of place,” said observers from the Chinese publication.

Experts believe that Novak was sent to China on Putin’s orders, who sensed something amiss in the way relations with China were developing. Lately, signals from Beijing have been displeasing to Russia.

Putin’s choice of Novak for the visit to China was not accidental. The Foreign Minister Lavrov could have been sent, but Novak is a specialist in the energy sector. It is assumed that Novak went to China to discuss the implementation of the construction of the new “Power of Siberia 2” gas pipeline.

The Power of Siberia 2 (PS2) pipeline – assuming it is eventually built – will export gas from the Yamal peninsula fields in western Siberia, cutting across eastern Mongolia to carry 50 billion cubic metres (bcm) of gas annually to northern China.

Russia aims to increase supplies via Power of Siberia 1 to 38 bcm annually by 2025. If the plans for Power of Siberia 2 and another link from Russia’s far eastern island of Sakhalin come to fruition, Russia’s pipeline gas exports to China would rise to almost 100 bcm per year by 2030.

The plan has gained urgency as Moscow aims to double its gas exports to energy-hungry China to make up for the collapse of its exports to Europe following the war in Ukraine. But agreement on key issues including pricing remains elusive.

China’s President Xi Jinping told Russian President Vladimir Putin in Beijing this month that he hoped the China-Mongolia-Russia gas pipeline will make substantive progress as soon as possible, yet nothing has been formally agreed between the two countries.

The project is extremely important for Russia, as it will allow the country to significantly increase its gas supply volumes to China. However, the Chinese side is stalling on signing the contract and is setting its own conditions. For the first time, Beijing wants Russia to bear the costs of constructing the pipeline. Secondly, it demands a discount on energy resources. Beijing refuses to sign a contract for the pipeline construction until Moscow guarantees to meet its requirements.

“Sensing trouble, Russia immediately sent 20 people to have a thorough discussion with China,” stated journalists from China.

Sohu observers believe that China will not change its conditions in the negotiations with Novak, and moreover, the discussion will be conducted in a rather tough manner. Therefore, the Russian Deputy Prime Minister will feel extremely uncomfortable at these meetings.

Russia currently exports gas to China through the Power of Siberia 1 pipeline, which began operating in 2019 and runs through eastern Siberia into China’s northeastern Heilongjiang province.

Experts say that as China is not expected to need additional gas supply until after 2030 Beijing could drive a hard bargain on price for a second pipeline via Siberia.

Moscow has not said how much the 2,600 km (1,616 miles) Power of Siberia-2 would cost or how it would be financed. Some analysts have put the cost at up to $13.6 billion.

“There are too many risks, not least political ones. It’s too dangerous to depend on a single buyer which may change its decision to buy the product from you any time,” said a Russian industry source familiar with the talks.

Russia aims to increase supplies via Power of Siberia 1 to 38 bcm annually by 2025.

If the plans for Power of Siberia 2 and another link from Russia’s far eastern island of Sakhalin come to fruition, Russia’s pipeline gas exports to China would rise to almost 100 bcm per year by 2030.

That’s around half of Russia’s annual exports to Europe at the peak reached in 2018 and compared to a combined capacity of 110 bcm of Nord Stream 1 and 2.

Russia, however, expects the price of its pipeline gas for China to steadily decline over the next few years, according to a government document, and be much lower than prices for sales to Europe – which before the war in Ukraine accounted for 80% of Russian gas exports.

The Russian economy ministry has not responded to a request for comment on the document published last month.

The document sees the price of Russian pipeline gas for Turkey and Europe falling to an average $501.60 per 1,000 cubic metres this year and to $481.70 in 2024 from $983.80 in 2022.

For China, it expects the price to average $297.30 in 2023 and $271.60 in 2024.

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