China and Russia deadlocked over Siberia 2 gas pipeline pricing terms

Negotiations between China and Russia over the Power of Siberia 2 gas pipeline have ground to a halt as the two countries struggle to reconcile vastly different pricing expectations, according to multiple sources familiar with the talks.

Deep divide on pricing

The impasse centres on China's push for substantially lower rates than Russia is willing to accept. China is seeking a price comparable to Russia's subsidised residential rate of around US$50 per thousand cubic metres, or at minimum the domestic industrial rate of approximately US$120-130 per thousand cubic metres, according to one source who requested anonymity due to the sensitivity of the issue.

Russia, however, wants to reference the pricing structure of the existing Power of Siberia 1 pipeline, which stands at about US$250-260 per thousand cubic metres, the source added. This represents a gap of more than double China's maximum target price.

Context of current gas flows

China's current average gas import price via Power of Siberia 1 is about US$258 per thousand cubic metres, the source noted. For comparison, Russia's selling price to Europe before the Ukraine war exceeded US$420 per thousand cubic metres.

Despite the stalemate over Power of Siberia 2, work continues on existing and alternative routes. A second source, also requesting anonymity, said it appears Gazprom and China National Petroleum Corporation are preparing to begin supplying Russian gas to China via the Far East route and are discussing projects to expand and increase supplies along this route.

The same pattern is visible with Power of Siberia 1, where both sides are working to increase physical supplies, the second source added.

Pipeline specifications

The planned Power of Siberia 2 pipeline would stretch 2,600 kilometres (1,553 miles) and is expected to carry 50 billion cubic metres of gas per year to China via Mongolia from the Arctic gas fields of Yamal. The project is also assumed to serve as a complement to Power of Siberia 1, also known as the China-Russia Far East Gas Pipeline.

Source: South China Morning Post