Economy

The Power of Siberia-2 gas pipeline is back on the agenda: what does it mean for Ukraine?

Talks between Chinese leader Xi Jinping and Russian President Vladimir Putin this week will include a discussion of a gas pipeline to connect the two countries. The talks resume discussions that have been stalled for years due to disagreements over the cost, route, and urgency of the project, Komersant ukrainskyi reports, citing Bloomberg.

Moscow has long sought to secure an agreement on the Power of Siberia 2 pipeline, not only to strengthen ties but also to increase gas supplies to the world’s largest energy importer. Russia has become even more dependent on sales to China as it tries to replace the European market, which has shrunk dramatically since the full-scale invasion of Ukraine in 2022 and could be completely closed by 2027. For Beijing, which has other supply options and a policy of import diversification, reaching an agreement was much less urgent.

However, economic hardships on both sides may be pushing them closer to a compromise-Russia is under harsh Western sanctions, and China’s own industrial and trade problems make cheaper gas attractive.

China’s position

During the visit, Beijing may be willing to break the previous stalemate by allowing negotiations for a higher selling price than previously considered, according to sources familiar with government discussions.

China is now seeking to set a price between Russia’s domestic gas price and what it pays for gas through the original Power of Siberia pipeline, which began delivering fuel in 2019, the sources said.

There are still points of disagreement. China will insist on a direct connection, avoiding a route through Mongolia, the sources said. The original Power of Siberia pipeline directly connects the neighbors, but other possible routes were considered for the second phase.

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It’s not easy to reach an agreement

“The Power of Siberia 2 will allow Russia to supply an additional 50 billion cubic meters of gas per year, and China to replace more expensive liquefied natural gas imports. By comparison, Russia expects to deliver 38 billion cubic meters of pipeline gas to China this year as the original Power of Siberia pipeline reaches its design capacity.

However, negotiations on the pipeline have been going on for years, with Beijing refraining from even a preliminary agreement, while Moscow has repeatedly stated that an agreement is imminent. Several sources familiar with the situation said that the agreement is not expected to be officially signed during this visit.

An unknown factor in the negotiations will be US efforts to explore closer contacts with Russia on gas, including possible cooperation with Gazprom.

“The Power of Siberia 2: Advantages and Disadvantages for Ukraine

Potential negotiations between China and Russia on the Power of Siberia 2 gas pipeline have a number of important implications for Ukraine. Let’s take a closer look at the advantages and disadvantages for the Ukrainian side.

Advantages for Ukraine

Reducing the EU’s dependence on Russian gas

• The more Russian gas is directed eastward (to China), the less pressure the EU will have to return to purchasing Russian energy.
• This strengthens the strategy of Ukraine and its Western partners to become energy independent from Russia.

Russia’s financial losses on the European direction

• The article states that the European market for Russia “may be completely closed by 2027”.
• This confirms at least partial success of the sanctions policy supported by Ukraine.

Weakening the Russian economy through unequal deals

• China is negotiating from a position of strength and is likely to get significant discounts.
• Russia is forced to agree to less favorable terms, which weakens its economic potential and, consequently, its ability to finance military operations.

Disadvantages for Ukraine

Strengthening Russia’s economic resilience

• Successful implementation of the project will provide Russia with a stable source of income, which will partially compensate for the losses from Western sanctions.
• These funds will be used to finance military actions against Ukraine.

Strengthening the Russia-China geopolitical alliance

• Deepening economic ties between these countries could lead to increased political cooperation against the Western bloc.
• This complicates Ukraine’s diplomatic efforts to isolate Russia internationally.

Reduction of Ukraine’s transit role

• The development of alternative gas supply routes from Russia further reduces the geopolitical importance of the Ukrainian gas transportation system.
• This weakens Ukraine’s negotiating position on gas transit.

Potential easing of sanctions pressure

• The mention of “U.S. efforts to explore closer contacts with Russia on gas” may indicate a certain softening of the West’s position.
• This undermines the effectiveness of the sanctions policy on which Ukraine relies.

Key factors to watch:

1. Thetimeframe for project implementation – the longer the negotiations last, the longer Russia will not be able to compensate for losses in the European market. Therefore, it is beneficial for Ukraine if these negotiations are delayed.
2. Pricing policy – a high price for China will lead to higher profits for Russia, while a low price will mean more supplies but lower revenues.
3. The US position – the possibility of US cooperation with Gazprom mentioned in the article needs to be carefully monitored, as it may signal changes in geopolitical strategy.

In general, although the Power of Siberia 2 project poses certain risks to Ukraine, it also reflects Russia’s strategic weakness, which is forced to look for alternative markets in the face of Western sanctions and is gradually losing its position in the European energy market.

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