New Delhi: As tensions continue in the Strait of Hormuz, Russia and China have moved forward on a major gas pipeline deal that could change energy flows across the world. Talks around the ‘Power of Siberia 2’ gas pipeline have picked up momentum, with both sides working on a long-term supply arrangement that could reconfigure international gas trade.
The project is expected to move up to 50 billion cubic metres of natural gas annually from Russia’s Arctic region to China through Mongolia. The development comes at a time when energy markets are dealing with supply disruptions and price volatility arising from geopolitical tensions. The agreement, once finalised, could reduce China’s dependence on liquefied natural gas imports from international sea routes.
What the ‘Power of Siberia 2’ project means
Add Zee News as a Preferred Source
The proposed pipeline stretches roughly 2,600 kilometres, carrying gas from Siberia’s northern fields to China’s industrial north. It is designed as a major overland energy corridor, similar in scale to earlier projects built to serve European markets.
ALSO READ: Bonds of Beijing: Vladimir Putin and a grown-up Chinese engineer share a tearful full-circle reunion | Viral video
After Western sanctions following the Ukraine war, Russia lost access to much of its traditional European gas market. State-run Gazprom now faces surplus supply in regions such as Yamal Peninsula, where production continues but export options are limited. China has emerged as a crucial buyer in this situation by offering Russia a stable outlet for its energy exports.
Why this goes beyond Russia and China
Even though the deal is between two countries, its impact is expected to extend far beyond them. China presently meets a large part of its gas demand through liquefied natural gas (LNG) imports from countries such as Qatar and Australia, transported via sea routes.
If the new pipeline becomes operational, a major portion of China’s gas demand could be met through overland supply. This would reduce China’s reliance on world LNG markets that in turn could lower overall demand in international energy trade.
ALSO READ: After Trump, Xi Jinping hosts Putin but with greater grandeur: Why China, Russia ties are too big to fail
Analysts tracking world energy flows say that if China reduces its LNG purchases, it could ease international price levels. A drop in demand from the world’s largest energy importer leads to softer pricing in international markets for both natural gas and crude oil.
For countries like India, Japan and South Korea, which depend heavily on imported energy, this could bring some relief in import costs. Lower LNG prices may also influence domestic fuel pricing, including CNG, PNG and transport fuels over time.
Negotiations still facing hurdles
Despite progress in talks, the deal is still not final. Pricing is a major sticking point. Russia is pushing for market-linked pricing, while China is seeking discounted rates closer to domestic supply levels.
Supply guarantees are another area of disagreement. Russia wants long-term purchase commitments for the full 50 bcm capacity, but China prefers flexibility as it has multiple supply options, including existing pipelines from Central Asia and ongoing LNG imports from international suppliers.
ALSO READ: Leaked files expose Russia-China war machine building around Taiwan
China’s present energy mix includes the operational ‘Power of Siberia 1’ pipeline, along with imports from Turkmenistan, Uzbekistan and Myanmar, in addition to sea-based LNG shipments. This gives Beijing strong negotiating leverage and reduces urgency in finalising any single agreement.
Energy markets track developments
Energy markets are tracking these developments as any change in China’s buying pattern can affect international pricing trends. With the Strait of Hormuz tense due to geopolitical tensions, additional changes in demand from China could further change supply dynamics.
