China Chooses Building Gas Pipeline From Turkmenistan Over Power Of Siberia-2

Negotiations between Moscow and Beijing have reached an impasse.

Attempts by Russian President Vladimir Putin to negotiate an increase in gas supplies to China have stalled.

Instead of the 50 billion cubic meter Power of Siberia-2 project, which the Kremlin has been promoting for more than 7 years, Beijing has decided to give priority to a new gas pipeline from Turkmenistan, Reuters reported, citing senior Chinese officials and representatives of the country's oil and gas industry.

Although Turkmen gas costs China 30% more than Russian gas, and negotiations on a discount with Ashgabat failed, Beijing gave the green light to the Line D project, which will import 30 billion cubic meters from Turkmenistan annually.

State oil and gas corporation CNPC last week began developing a feasibility study for a 200-kilometer interconnector from Xinjiang's border with Kyrgyzstan to the Chinese city of Wujia as the first point of entry, according to a senior Reuters source.

“This means that line D is being prepared,” the source said, adding that the construction of an internal highway in China could begin as early as next year.

In 2022, through three existing pipelines, China imported 35 billion cubic meters of gas from Turkmenistan, paying $10.3 billion for it. Russian supplies through the Power of Siberia launched in 2019 amounted to 16 billion cubic meters, and their cost was 2.5 times lower — about $4 billion.

At a meeting with Chinese President Xi Jinping in the Kremlin in March, Russian President Vladimir Putin proposed increasing gas flows sixfold, to 98 billion cubic meters a year. And although Putin called Xi “dear friend” and spoke in Chinese toasting his health, the long-awaited gas contract never materialised.

Despite all Russia's overtures and statements about an indestructible and “strategic partnership”, China is prioritizing Turkmenistan. “Central Asian pipelines are considered a key investment in China's energy and geopolitical space. It is a supply chain with strategic value that transcends commercial aspects,” a Chinese official familiar with CNPC’s global strategy told Reuters.

As for the Russian offer, China could use it to its own advantage — to “negotiate a better price for Line D”, another source told Reuters. According to him, it is possible that in the end Beijing may conclude both deals — with both Moscow and Ashgabat, but most likely there will be no rush to the Russian contract.

A visit to China by Russian Prime Minister Mikhail Mishustin, tasked with expanding economic ties, proved powerless to change the situation. A large delegation of Russian officials, including four vice-premiers and two ministers, returned from Shanghai empty-handed: China's firm consent to the “Power of Siberia-2” could not be obtained. Xi Jinping did not say a word about the project in public statements after the talks.

A new gas contract with China is desperately needed by Gazprom, which has lost the European market and more than half of its exports last year. Gas pumping to Europe has fallen to the lowest level since the last years of the USSR, and this year is likely to drop to the levels of the 1970s.

“Gazprom is in a catastrophic situation with exports,” a source close to the company told Reuters in March. China will buy 22 billion cubic meters of gas this year, seven times less than the EU consumed before the war. Moreover, the cost of these deliveries is $290 per thousand cubic meters, while contract prices for Europe reached $1,000 in December, BCS analyst Ronald Smith estimates.

The problem is that “(China) just doesn’t need the extra gas,” says Batt Odgerel, senior analyst at the Energy Policy Research Foundation.

China does not want to repeat Europe’s mistake, and intends to diversify suppliers, especially since there are no problems with this — the United States, Qatar, Australia and Turkmenistan want to sell gas, he points out: “This is a buyer's market. And unless Russia comes up with an extremely attractive offer, China can wait as long as it wants.”