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What Russia’s First Gas Pipeline to China Reveals About a Planned Second One

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Summary

This article discusses the Power of Siberia 2 gas pipeline project, which is planned to export Russian natural gas from the Yamal Peninsula in Western Siberia to China. The article examines the Power of Siberia 1, which was launched in 2014, and compares the pricing formula used in the Chinese contract with those of other Central Asian countries. It also examines the pricing structure of the pipeline sales contract, concluding that while the contract may not be particularly lucrative for Russia, the oil-linked formula of averaging the price over long periods came in very useful during the COVID pandemic. Finally, the article suggests that Russia might look to the lessons from the Power of Siberia 1 saga and attempt to be tougher in negotiations for the Power of Siberia 2.

Q&As

What was a key topic of discussion during the Chinese leader Xi Jinping’s recent visit to Moscow?
A key topic of discussion during the Chinese leader Xi Jinping’s recent visit to Moscow was the Power of Siberia 2 gas pipeline project planned to export Russian natural gas from the Yamal Peninsula in Western Siberia to China.

How much natural gas does Russia export to China annually?
Russia exports 38 billion cubic meters (bcm) of natural gas to China annually.

How does the pricing formula for the Power of Siberia pipeline compare to other Chinese pipeline suppliers?
The pricing formula for the Power of Siberia pipeline is at a 15–20 percent discount compared to other Chinese pipeline suppliers.

How does the pricing for Russian gas exports to China compare to forward prices in Europe?
The pricing for Russian gas exports to China is lower than forward prices in Europe.

What factors influenced Gazprom's decision to sign the Chinese contract?
Factors that influenced Gazprom's decision to sign the Chinese contract included the pressure to abandon oil-linked pricing, the assumption that low prices were unlikely, and the belief that it was more important to have a contract in place than to waste time trying to make it solid.

AI Comments

👍 This article is well-researched and provides a comprehensive analysis of the Power of Siberia 1 gas pipeline project and its implications for the Power of Siberia 2 project.

👎 This article does not provide any concrete solutions to the issues arising from the Power of Siberia 1 gas pipeline project.

AI Discussion

Me: It's about the implications of the first gas pipeline between Russia and China, and what it could mean for the second pipeline. It talks about the pricing formula used for the first pipeline and how it compares to other gas contracts that China has with other countries. It also looks at the pricing formula from a historical perspective and how it may have been influenced by the market conditions at the time.

Friend: Interesting. So what are the implications of this article?

Me: Well, the article suggests that the pricing formula used for the first pipeline may not be as lucrative for Russia as originally thought. It also suggests that Russia may face similar bargaining power issues with China when negotiating the terms of the second pipeline. Additionally, the article points out that the pricing formula used for the first pipeline may have become a precedent, which could make it difficult for Russia to push for a better deal when negotiating the second pipeline.

Action items

Research the pricing formulas of other countries’ gas contracts with China to compare with the Russian-Chinese gas contract.
Analyze the data from China’s customs authorities to better understand the parameters of their pipeline gas imports.
Monitor the monthly gas payment figures from China to gain insight into the structure of the contracts.

Technical terms

Gazprom: Russian energy company and the largest extractor of natural gas in the world.
Power of Siberia: A gas pipeline project planned to export Russian natural gas from the Yamal Peninsula in Western Siberia to China.
Brent 6-3-3: A pricing formula used in the Russian-Chinese gas contract, where the price is fixed for three months based on a six-month average with a three-month delay.
Monopsonist: A market structure in which there is only one buyer.