There may be less than meets the eye with Gazprom’s announcement Tuesday of a major, binding deal to build a massive Russia-to-China natural gas pipeline.
Why it matters: The agreement — if borne out — is a diplomatic win for Moscow after years of stalled talks over the Power of Siberia 2 project.
The big picture: It would mark stronger strategic ties between the powers and a wider Chinese market following steep declines in Russian exports to Europe since it invaded Ukraine.
And it would also shrink a long-term market for U.S. LNG, which China has stopped purchasing of late. And China also recently started receiving gas from Russia’s Arctic LNG 2 project.
The reported agreement is big — a new, continent-spanning line to carry up to 50 billion cubic meters annually from Russia’s Yamal Peninsula, along with more volumes through existing routes.
For context, the U.S. exported roughly 123 bcm of LNG worldwide last year.
Reality check: To say the devil’s in the details would be an understatement.
Russian news services report that commercial pricing and project financing plans haven’t been revealed.
“It’s done when it’s really done, when the two sides reach a price,” said Jane Nakano of the Center for Strategic and International Studies, adding that talks over the smaller Power of Siberia 1 project extended many years.
“The price will be the major, major challenge. This is only the beginning of the birth of Power of Siberia 2.”
What they’re saying: China has the leverage in negotiations, the Atlantic Council’s Joseph Webster tells me.
“Russia doesn’t really have a major alternative overland outlet anymore because it has cut itself off from Europe,” said Webster, a senior fellow with the think tank’s Global Energy Center.
And Russia’s energy posture has weakened in other ways since the Power of Siberia 1 deal finally came together over a decade ago.
Alternatives are increasingly available in China — think heat pumps and other tech — and China’s domestic gas production is rising, he notes.
Between the lines: Webster was kind enough to riff on what might be happening behind the scenes, despite the unknowns.
Moscow and/or Gazprom could be trying to show European buyers that they have alternatives, and it’s a poke in the eye to U.S. LNG, he said.
Webster also said it’s possible Russia could lose money on the project, depending on the financing agreement.
“But … it’s a major diplomatic win if they can agree to this, because it allows [Vladimir] Putin to demonstrate both to external audiences — especially in Europe, but perhaps more importantly, domestically — that he has international support, that he has backing from the world’s second most powerful country.”
The bottom line: While China’s gas demand growth is slowing, Nakano agrees Beijing and Moscow both have geopolitical motivation to send a message.
“This is another show of Beijing’s defiance to the Western, and particularly U.S., pressure on China to reevaluate its ties with Russia.”
Source: Axios