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Russia and China: Closer Ties Through the Power of Siberia-2 Pipeline

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In a significant development that underscores the shifting global power dynamics, Russia and China are on the cusp of signing a crucial contract for the Power of Siberia-2 (PS-2) gas pipeline. This project, which has been discussed for years, is now nearing fruition. Russian Deputy Prime Minister Alexander Novak recently confirmed that the agreement will be finalized “in the near future.”

The Power of Siberia-2: A Strategic Project

The PS-2 pipeline is designed to transport 50 billion cubic meters (bcm) of natural gas annually from Russia’s Yamal region to China via Mongolia. This 2,600-kilometer-long pipeline is not just a piece of infrastructure but a strategic pivot for Russia as it seeks to replace Europe with China as its primary gas customer. This move has gained urgency as Moscow looks eastward in response to Western sanctions and the ongoing geopolitical rift with Europe following Russia’s invasion of Ukraine in February 2022.

Deepening Russia-China Relations

During a recent visit to China, Russian officials, including Novak, discussed the PS-2 project with their Chinese counterparts. This visit highlighted the growing bond between Russian President Vladimir Putin and Chinese President Xi Jinping, who have both vowed to start a “new era” of strategic partnership. Putin’s reliance on China to support Russia’s wartime economy has intensified, making the success of the PS-2 pipeline crucial.

“We plan additionally to finish the review and sign a contract for the construction of a gas pipeline with a capacity of 50 billion cubic metres of gas through the territory of Mongolia in the near future,” Novak stated on the Rossiya-1 state television broadcast. This declaration marks a significant step in Russia’s efforts to cement its energy alliance with China.

Economic and Geopolitical Implications

For Russia, the PS-2 pipeline represents a vital economic and geopolitical tool. The loss of the European market is seen as irreversible by the Kremlin, and PS-2 is viewed as a means to mitigate this loss. Although the pipeline may not be as profitable as its predecessor, the Power of Siberia-1 (PS-1), it is expected to generate significant revenue and stimulate economic development in eastern Russia. This development is crucial as Russia transitions to a wartime economy, focusing on large-scale, state-funded infrastructure projects.

Moscow regards gas as a potent instrument in its geopolitical strategy. Historically, Russia has used gas supplies as “geopolitical currency” to influence post-Soviet states. Now, by selling large volumes of gas to China, Russia hopes to tie Beijing into a closer geopolitical alliance. However, Russia’s bargaining power with China is weaker than it was with its former satellite states, making this a challenging endeavor. Convincing China to commit to such a large project during wartime would be a geopolitical victory for Moscow, showcasing its ability to deepen its energy relationship with China despite Western opposition.

China’s Strategic Calculations

China, however, is in no rush to finalize the PS-2 agreement. With a variety of energy import options, including a robust LNG import capacity and potential pipeline projects from Central Asia, China is well-positioned to negotiate favorable terms. The country’s long-term energy outlook suggests that while it will eventually need more gas, this need will not become critical until the mid-2030s.

China’s cautious approach allows it to use the PS-2 negotiations as leverage in discussions with other suppliers, thereby securing better deals. Additionally, the ongoing deterioration of US-China relations could make Russian gas more appealing as a way to diversify China’s energy imports away from US and Australian sources. As noted in a recent commentary, “China has the luxury of time when it comes to PS-2 because it does not need the gas right away. Moreover, China is spoiled for choice in its supply options.”

Impact on Global Gas Markets

The completion of the PS-2 pipeline could significantly alter global gas dynamics. By providing China with an additional 50 bcm of pipeline gas, it would reduce China’s reliance on LNG imports, potentially prolonging a global LNG surplus. This shift could also challenge Russia’s ambitions to expand its LNG exports, as China would prioritize pipeline gas over LNG.

Furthermore, PS-2 could enhance China’s role in the global LNG market. With more flexibility in managing its import portfolio, Chinese companies could become major players in LNG trading, influencing global trade flows and market liquidity.

Conclusion

The Power of Siberia-2 pipeline is more than just an infrastructure project; it is a symbol of the evolving geopolitical and economic landscape. While Russia sees it as a necessary pivot from Europe to Asia, China views it as a strategic option among many. The project’s future will likely depend on geopolitical developments and the economic calculations of both nations. If and when the PS-2 pipeline becomes operational, it will be on China’s terms, potentially reshaping the global energy market for years to come.

In the broader context, this project highlights the West’s diminishing influence over global energy markets as Russia and China forge a closer alliance. The successful completion of the PS-2 pipeline would not only secure China’s energy needs but also reinforce the notion that Western sanctions and policies are increasingly ineffective in isolating Russia. As the world watches, the Power of Siberia-2 pipeline could become a defining element of the new global order, challenging the dominance of Western energy markets and marking a significant shift in the balance of power.

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