What is the Power of Siberia 2 pipeline that Russia, China are planning? | | Powerful Stories

On this week’s schedule Russia-China meeting between President Vladimir Putin and Xi Jinping is the long-delayed Power of Siberia 2 (POS-2) project, a 2,600km (1,616-mile) natural gas pipeline that would carry Russian natural gas from western Siberia through Mongolia to China.

On Wednesday, the two countries said they have reached an agreement on the route and construction of the pipeline, but other aspects have not yet been discussed.

Recommended Articles

list of things 3end of series

Once built, the pipeline is expected to have a capacity of 50 billion cubic meters (1.77 trillion cubic feet) per year, equivalent to a capacity of 525 terawatts – almost twice the annual electricity output of the United Kingdom.

The route would be as large as Nord Stream 1, one of Russia’s most important gas pipelines to Europe, which had the capacity to produce 55 billion cubic meters (1.94 trillion cubic feet) per year.

Analysts say Russia wants to build the pipeline to replace lost revenues since European countries cut gas exports from Russia after Moscow invaded Ukraine in February 2022.

For China, pipeline gas from Russia could provide a safer alternative to imported natural gas (LNG), which is liquefied and transported by train.

Most of China’s LNG needs to be shipped through transit facilities, such as Hormuz River and the Strait of Malacca.

The new approach may seem like a success, but experts say there are significant hurdles ahead of the project.

Here’s what we know:

Is the POS-2 pipeline feasible?

The pipelines are possible because Russia’s state-owned Gazprom, the world’s largest natural gas producer and reserves, has the ability to build large, long-distance pipelines through difficult terrain, Jack Sharples, senior research fellow at the Oxford Institute for Energy Studies, told Al Jazeera.

It takes several years to complete the pipeline, however. The first Power of Siberia pipeline (POS-1) transports gas from two regions in eastern Siberia to the Russia-China border. The construction of the pipeline started after the agreement of 2014. Its first shipment started in 2019, and it was completed in 2024.

Although it is a little shorter than POS-1 and does not need to produce new air, POS-2 has to go through a third country – Mongolia, he said.

The time from the start of construction to installation is “unlikely” to be much shorter than that of POS-1 but to reach “a larger area may require a little longer than five years,” he said, adding, “The project may take ten years from the start of construction to full completion.”

Has the agreement been reached?

Not now.

After Putin met with Xi On Wednesday, the Kremlin spokesman, Dmitry Peskov, told Russian media: “The president said that during the talks, there is already an understanding of the main stages of Power of Siberia 2.”

“There is agreement on the way and how the project will be built.” Some points still need to be finalized, but in general, such an understanding is already there,” he said.

Peskov admitted that there was no time to do this.

POS-2 is “technically difficult” but the shutdown “has been permanent,” Seb Kennedy, CEO and founder of independent energy market analysis publisher Energy Flux, told Al Jazeera.

Discussions on Wednesday related to “large parts” and “diplomatic code” due to disagreements over price, he said.

Analysts agreed that this is the biggest stumbling block, but unlike Russia, China is in no rush to reach an agreement.

What is there in Russia?

For Russia, POS-2 will provide a new market for oil produced in Europe, helping the state-controlled giant Gazprom to recover some of the revenues it has lost since then. Moscow invaded Ukraine.

Before the war, “Putin turned to Europe in terms of economic development,” said Remi Bourgeot, an economist at the French Institute for International and Strategic Affairs in Paris and author of the analysis platform epistelem.org.

For Russia, the reward will be Gazprom’s income not only from gas sales, Sharples said, but also from “the economic growth of Russian pipeline companies and Russian steel pipe manufacturers, and therefore, Russian steel producers”.

However, Russia’s economic importance has given China the upper hand in negotiations.

“The issue is that prices are clearly being negotiated by the Chinese to be lower than what the European market is offering, which makes sense, since Russia doesn’t have many options at the moment,” said Bourgeot.

“Russia urgently needs to get the money to buy gas that is about to expire, but China sees that Moscow is weak in negotiations after the loss of Europe as a major buyer,” Go Katayama, chief analyst of LNG and natural gas at the Kpler analysis company, told Al Jazeera.

Therefore, Beijing wants to lower the very low prices linked to Russian benchmarks while Russia needs higher prices to justify the high cost of construction, he said.

“The talks show a trade-off between Russia’s need for stability and China’s desire for a low-cost defense system,” he said.

“Beijing is said to have pushed for prices related to Russia’s highly subsidized domestic gas prices. Moscow wants a word near POS-1,” Kennedy said.

“Every dollar shaved off the net has a direct impact on the Russian economy at a time when gas-related tax receipts have already fallen,” he added.

What is there in China?

China may not have the same need as Russia, but POS-2 remains a bright prospect as the country seeks to consolidate its electricity supply and reduce its reliance on offshore LNG.

Not only is Beijing concerned about the recent accidents caused by sea routes such as the Strait of Hormuz, but LNG exports are also subject to international challenges involving multiple suppliers, shipping lines and receiving terminals.

This makes China’s LNG exports more vulnerable to political instability and price volatility than natural gas via pipeline.

In short, analysts said the plan provides China with a defense mechanism that requires cooperation especially with Russia, which is eager to strengthen ties with its powerful neighbor.

Mongolia, a landlocked country between China and Russia, whose economy is comparable to that of the Maldives, cannot resist collecting hundreds of millions of dollars a year in fees.

What are the risks?

Investigators said the pipeline is more than capable.

It also reflects a growing effort by Russia and China to build stronger economic ties and reduce their reliance on a Western-led system that both countries see as broken and untrustworthy.

At Wednesday’s meeting, the leaders said this.

“Despite the external challenges, our cooperation and economic cooperation are showing great progress,” Russian media quoted Putin as saying to Xi.

Meanwhile, Xi praised the “unshakable relationship”, adding: “We have succeeded in deepening our political trust and cooperation with wisdom and courage that remains unyielding despite trials and tribulations.”

However, behind the show of unity, both Beijing and Moscow will remain cautious, analysts said.

“Both sides can be cautious. For Russia, it closes to supply a large volume to one customer. For China, it increases Russia’s share of gas distribution to China,” Sharples said.

“China’s threat is more and more politically-armored suppliers as domestic goods and supplies increase,” Kennedy said, adding: “Russia’s threat is costing one customer who knows they have nowhere else to go.”

How will POS-2 change the world’s energy markets?

POS-2 would reduce China’s future LNG import needs by offsetting the demand for LNG with Russian gas, Katayama said.

“This could reduce competition for Atlantic Basin carriers and lower global LNG prices in the long run, especially during times of demand in Asia,” he said.

Every cubic meter China wants to buy through the pipeline is less cargo it can pull from the Atlantic basin, creating a 2030s threat to the TTF, Europe’s largest natural gas market, in the middle of LNG booms, Kennedy said.

“Increasingly, this project will accelerate the transformation of the fragmented and fragmented global natural gas market into long-term partnerships instead of global LNG trading,” Katayama said.

It will also shut down Russian routes to the east, Kennedy explained.

“POS-2 would reduce Moscow’s urgency to reopen pipelines to Europe although it would not restore Russia’s remittances before 2022. POS-2 is a consolation prize, not a replacement,” he said.