Russia’s proposed natural gas pipeline project through Mongolia to China is facing obstacles and is likely to be delayed, raising concerns among experts about possible rifts between Moscow and Beijing.
Russian President Putin expressed the intention to cooperate with China in building the “Power of Siberia 2” natural gas pipeline during his visit to China on May 17th. The pipeline would transport Russian natural gas through Mongolia to northeastern China. However, according to a report by the South China Morning Post on Monday (August 19th), Mongolia’s National Development Plan for 2024-2028 does not include the Russia-China gas pipeline project.
The original plan for the “Power of Siberia 2” pipeline was 3,550 kilometers long, with 950 kilometers passing through Mongolian territory. The pipeline was intended to start from Russia’s Altai region, pass through Mongolia, and enter northeastern China, with an annual gas delivery capacity of 50 billion cubic meters.
Since Europe restricted natural gas imports from Russia in response to Russia’s full-scale invasion of Ukraine in 2022, this pipeline has become increasingly important for Moscow.
However, the absence of the pipeline project in Mongolia’s National Development Plan has cast uncertainties over its future. According to Munkhnaran Bayarlkhagva, a former official of Mongolia’s National Security Council quoted by the South China Morning Post, the pipeline project may face delays.
The geopolitical analyst and election observer in Ulaanbaatar hinted that Moscow might be disappointed as Beijing’s support for the project seems unlikely at the moment, suggesting a potential rift between Moscow and Beijing. This is because the Russian state-owned gas giant Gazprom plans to unilaterally control the construction and operation of the pipeline within Mongolia, which could strengthen Russia’s influence in Mongolia and lead to Beijing’s dissatisfaction.
On the other hand, Russia is also critical of the Chinese authorities. According to the Financial Times, negotiations for a major Russian-Chinese natural gas pipeline agreement have stalled due to Russia’s dissatisfaction with China’s unreasonable demands on pricing and supply levels. The price offered by China is almost equivalent to heavily subsidized domestic prices in Russia, with a commitment to purchase only a small portion of the annual gas volume of 50 billion cubic meters.
Russia views oil exports and the energy industry as crucial to its economy, accounting for about 30% of national budget revenues. With sanctions imposed by Western countries following the Russia-Ukraine war severely impacting Russia’s natural gas sales to Europe, the loss of the European market has been significant. While energy cooperation with China has grown, it has not fully compensated for the major loss in the European market.
The Russian Central Bank reported in January that natural gas deliveries to China through the “Power of Siberia 1” pipeline in 2023 were 1.5 times higher than in 2022, reaching 23 billion cubic meters, partially offsetting the loss in the European market.
Russia’s gas exports to Europe have plummeted from an average of 230 billion cubic meters per year in the decade before the Ukraine invasion to 22 billion cubic meters in 2023. It is projected to further decrease by the end of this year.
Due to the drastic reduction in natural gas sales to Europe, the Russian state-owned gas company Gazprom incurred a record loss of 629 billion rubles (around 6.9 billion USD) last year, marking its largest loss in 25 years.
Russia’s reliance on the energy sector has created an urgent need for new export markets, and the “Power of Siberia 2” project is seen as a key initiative. However, Mongolia’s National Development Plan indicates that the Russia-China pipeline agreement remains a distant prospect.