Russia’s efforts to reach a significant gas pipeline deal with China have hit a serious problem due to disagreements over prices and the amount of gas supplied, reported the Financial Times, citing sources.
The agreement concerns the 2,600km-long Power of Siberia 2 pipeline, which starts in Yamalo-Nenets Autonomous Okrug (central Russia) and ends in Inner Mongolia (an autonomous region of China).
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China’s approach to the pipeline highlights the extent to which President Vladimir Putin’s dependence on Chinese leader Xi Jinping for financial support has increased since Russia’s invasion of Ukraine.
People familiar with the development told the FT that China had demanded to pay prices that were nearly identical to Russia’s heavily subsidised domestic levels
In addition, it had agreed to purchase a small portion of the pipeline’s projected annual capacity of 50 billion cubic metres of gas, they added.
If the pipeline is approved, it will connect the Chinese market to gas fields in western Russia that formerly supplied Europe, supporting state-backed gas company Gazprom, which is facing losses as sanctions begin to bite.
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By GlobalDataAmidst falling gas sales to Europe, which has been more successful than anticipated in diversifying away from Russian energy, Gazprom experienced a loss of Rbs629bn ($6.9bn) last year, the largest in at least a quarter of a century.
Despite Russia’s insistence that an agreement on Power of Siberia 2 is certain “shortly,” sources stated that the standstill was the reason Alexei Miller, the CEO of Gazprom, did not accompany Putin on the Russian leader’s state visit to Beijing last month.
As per sources, President Putin presented President Xi Jinping with three primary demands during their meeting: further Chinese bank involvement in Russia; a pipeline deal; and China’s rejection of a peace summit scheduled by Ukraine this month.
Last week, China declared that it will not attend the summit with Ukraine in Switzerland.
Sources said that Beijing and Moscow were in talks to ringfence one or more banks to fund trade in components for the latter’s defence sector.
They added that an agreement on the pipeline is still far off, and the suggested cooperation with Chinese banks is still significantly smaller than what Russia had asked for.
A request for comment was not immediately answered by the Kremlin, and Gazprom refrained from responding, the FT said, adding that China did not answer a request for comments.
