The BRICS summit in Kazan highlights China’s and Russia’s close alliance despite a conflicting interest over the ‘Power of Siberia 2’ pipeline project aimed at transporting Russian gas to China via Mongolia. With Mongolia already reliant on Russian energy, concerns arise about Beijing’s desire for lower prices, complicating the project. While Russia seeks new customers after significant revenue drops due to international sanctions, analysts suggest China’s leverage over pricing places it in a stronger economic position in this partnership.
The BRICS summit kicks off today in Kazan, Russia, where China and Russia are showcasing their close ties. However, tensions are surfacing over a proposed pipeline project.
During President Vladimir Putin’s recent visit to Mongolia, he promoted the ‘Power of Siberia 2’ pipeline, which aims to transport natural gas from Russia through Mongolia to China. Putin highlighted that the project involves not only gas transit but also the potential to supply energy to Mongolia itself. He stated that Gazprom is ready to assist with practical supply matters.
Mongolia finds itself in a challenging position, reliant on both Russia and China for its energy needs.
Concerns Over Dependency
Mongolia harbors reservations about the pipeline, given its existing reliance on Russia for energy. Notably, this pipeline is not part of the government coalition’s agenda for the next four years. Rajoli Siddharth Jayaprakash from the Observer Research Foundation notes that China’s influence is the main obstacle for the project, as Beijing aims to lower gas prices.
Currently, natural gas costs approximately 257 US dollars per 1,000 cubic meters. Jayaprakash mentions that China already benefits from the ‘Power of Siberia 1’ pipeline, which supplies gas from Yakutia, Russia.
While China and Russia both gain from each other, their relationship is not one of equals.
China’s Price Negotiations
For China, constructing another pipeline is not advantageous given the current market prices. ‘Therefore, China aims for a more favorable deal, with some reports suggesting they want to pay as low as 60 US dollars,’ Jayaprakash elaborates. In contrast, Russian consumers pay a similar rate. Russia staunchly opposes such pricing as it would significantly cut into their revenues.
Discussions surrounding the pipeline have been ongoing for nearly two decades, yet Russia’s interest has peaked recently due to significantly decreased European gas sales following the Ukraine invasion. Gazprom has suffered staggering losses, reporting over six billion euros in the last year alone, prompting Russia to seek new markets.
Putin is focused on enhancing energy collaboration with China.
China’s Silent Approach
While Moscow has repeatedly claimed that a supply contract is imminent, China has remained non-committal regarding the ‘Power of Siberia 2’ project. Jayaprakash points out that China also receives gas from Central Asia through various pipelines, including a key one from Turkmenistan.
At present, the prospects of the pipeline’s realization appear dim. ‘Currently, there is no assurance that this project will move forward,’ he comments.
Growing Relations Post-Invasion
Since the Russian invasion of Ukraine, China and Russia have bolstered their relationship, marked by regular joint military exercises. Notably, China has yet to openly condemn the invasion.
While China doesn’t supply weapons to Russia, it does provide dual-use items that can be applied for military functions, such as drones or microchips. China’s government has leveraged Russia’s international isolation, stepping in to provide goods that democratic nations have withdrawn, including technology and vehicles.
Pope Francis will also participate in the summit, raising awareness of the potential risks associated with artificial intelligence.
China’s Strategic Advantage
Despite significant energy sales to China, Russia’s friendship with Beijing seemingly falters when it comes to gas pricing. Geoff Raby, former Australian ambassador to Beijing, explores these dynamics in his book ‘Great Game On,’ where he argues that China holds the upper hand: ‘China doesn’t necessarily need the pipeline; it seeks the best possible deal.’
Upon examining the relationship between these two nations, Raby concludes it is neither founded on trust nor mutual goodwill. ‘The dynamics are quite harsh, and both parties are aware of this reality,’ he adds. An illustrative moment was when Putin traveled to China following Russia’s elections, yet the pipeline was notably absent from discussions.