Russia has been in talks to build a new pipeline to carry 50 billion cubic meters of gas a year from northern Russia to China via Mongolia, almost as much as the now-idle Nord Stream 1 pipeline under the Baltic Sea that was damaged in 2022. The project, called Power of Siberia-2, is expected to cost around $10 billion and start delivering gas by 2030.
However, the construction of the pipeline may face delays due to unresolved issues between China and Russia, such as pricing and economic benefits. According to Mongolian Prime Minister L. Oyun-Erdene, who spoke to the Financial Times, the two sides still need more time to do more detailed research on the economic studies, and studies are ongoing.
The record global gas prices in recent years have further complicated the negotiations, as both countries seek to maximize their profits from the deal. Gazprom, which will operate Power of Siberia-2, has not disclosed the price formula for the gas it will sell to China, but it is likely to be lower than the European market price.
The pipeline is seen as a strategic move by Russia to diversify its gas exports and reduce its dependence on Europe, which has imposed sanctions on Moscow since its invasion of Ukraine nearly two years ago. China, on the other hand, is looking to secure more gas supplies to meet its growing energy demand and reduce its reliance on coal.
The pipeline will also bring economic benefits to Mongolia, which will receive transit fees and access to Russian gas for its own consumption. Mongolia has agreed to provide land for the pipeline and waive taxes and customs duties for its construction.
Another benefit of the pipeline is that it will create jobs for both Russia and Mongolia, as well as for local contractors and suppliers. According to Gazprom, the project will employ about 15,000 people during the construction phase and about 3,000 people during the operation phase. The pipeline will also stimulate the development of related industries, such as metallurgy, engineering and logistics.
The pipeline will run parallel to the existing Power of Siberia-1, which started operating in 2019 and delivers 38 billion cubic meters of gas a year from eastern Siberia to northeastern China. The two pipelines together will make China the largest buyer of Russian gas, surpassing Germany.