FT: Russia and China agreed vast new Siberia gas pipeline

China and Russia have signed an agreement to build the Power of Siberia 2 pipeline, a huge gas project that could reshape global energy flows as both countries seek an alternative to Donald Trump’s US-led global order, ‘The Financial Times’ states.

Russia announced the deal as President Vladimir Putin met his Chinese counterpart Xi Jinping in Beijing on Tuesday. Russia’s pipeline gas monopoly Gazprom said the two sides had signed a legally binding “memorandum of construction” after years of stalled negotiations.

“Talks will now focus on financing the pipeline’s construction and the commercial terms of supply,” Gazprom’s chief executive Alexei Miller said on Tuesday in Beijing, according to state newswire Tass.

He promised to “provide the commercial details” separately but said a long-term gas deal would run for 30 years.

Even without clarity on costs, the deal signalled a significant shift in the global gas market. Once built, in the early 2030s, the 50bn cubic metre-a-year Power of Siberia 2 pipeline will run east from the gasfields that once served Europe. It also gives China an alternative to importing liquefied natural gas (LNG) from the US, Qatar and Australia.

The project may change the economics for companies currently considering whether to invest further in building LNG export terminals, particularly in the US, said Anne-Sophie Corbeau, a global research scholar at the Center on Global Energy Policy at Columbia University.

Corbeau said that after the new pipeline was built, China would be reliant on Russia for about a fifth of its gas. “China will import around 100bn cubic metres of Russian pipeline gas, and another 20-30bn cubic metres of LNG, but the demand level will be around 600bn cubic metres,” she said.

“This is a very clear signal...  suddenly we are removing 50 bcm [of demand] from the equation. For the people who want to take final investment decisions now, I would be a little concerned,” she said.

The three-way talks also involved Khurelsukh Ukhnaa, president of Mongolia, through which the pipeline will run, said Russian state newswire Interfax.

Moscow and Beijing also signed “commercial agreements” to increase supplies through existing routes by 8 bcm, with the aim of bringing total annual flows to 56 bcm before the new pipeline was built, Miller said.

But even if PS2 were launched, all of Russia’s total pipeline exports to China — about 106 bcm a year — would amount to about half of its pipeline gas supplies to Europe before the full-scale invasion of Ukraine, which approached 200 bcm prewar, according to Gazprom.

Russia is the largest supplier of pipeline gas and the third-largest provider of LNG to China after Australia and Qatar. The new pipeline would sharply increase China’s energy purchases from its neighbour and help compensate for Russia’s loss of markets in Europe after it invaded Ukraine.

Putin stressed his “close communication” with Xi “reflects the strategic nature of Russian-Chinese ties, which are at an unprecedentedly high level”, TASS reported.

…The construction of this new gas pipeline from an area where Europe had previously received gas indicates that Russian gas will go to the East instead of Europe. Europe, with its Russophobic policy, has deprived itself of the prospect of receiving cheap gas from Russia.

Bon appétit, gentlemen Europeans!

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