Reading The Tea Leaves On Power of Siberia-2

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Reading The Tea Leaves On Power of Siberia-2

Flags of China and Russia (© Shutterstock/Vitalii Vodolazskyi)
Flags of China and Russia (© Shutterstock/Vitalii Vodolazskyi)

Russia has been adept at talking up the inevitability of Power of Siberia-2 (PS-2), the pipeline that would bring gas from the prodigious Yamal peninsula fields in western Siberia to China, the world's top energy consumer.

But China is in no hurry to complete the protracted negotiations, as the country has secured contracts from various other non-Russian sources guaranteeing gas deliveries to China until year 2030.

For Russia, the construction of the PS-2 is the only way to compensate for at least part of the EU market it has lost. That market accounted for most of the gas produced from the Yamal peninsula. But this means there is no particular incentive for China to agree to the new pipeline now.

China, indeed, has been busy developing other overland supplies. At a summit with Central Asian countries several months ago, Xi championed the construction of the so-called Line D pipeline, which would be China’s fourth in the region bringing gas from Turkmenistan.

About 35 bcm of gas were exported to China via three pipelines from Turkmenistan last year. That compares with 16 bcm sent by Russia via Power of Siberia. Even with the PS-2 pipeline in place, Russia would not be able to match what it has lost in European sales. The price of this gas would also be lower. Gas sent through the first Power of Siberia pipeline — on terms struck when Russia’s negotiating position was much stronger — is priced well below the European market.

Russian Deputy Prime Minister Alexander Novak wrote in the Russian Energy Ministry's in-house magazine that "the decision for the Power of Siberia-2 gas pipeline's route is at the final stage."  Yet with China and Russia still having to agree on the terms of gas deliveries via the route, including pricing, pipeline construction seems a long ways off.

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