Analyzing The Reported Chinese-Russian Pricing Dispute Over The Power Of Siberia II Pipeline

Just like China believes that time is on its side, so too might Russia believe the same, each for their own reasons. Neither wants to budge on their respective positions because they expect that their counterpart will eventually concede to their requested price due to changing global circumstances.

The Financial Times reported on Sunday citing three unnamed sources that “Russia-China gas pipeline deal stalls over Beijing’s price demands”. According to them, “China had asked to pay close to Russia’s heavily subsidised domestic prices and would only commit to buying a small fraction of the pipeline’s planned annual capacity of 50bn cubic metres of gas.” This reported pricing dispute is allegedly why Gazprom chief Alexei Miller didn’t join President Putin during last month’s trip to Beijing.

Chinese spokeswoman Mao Ning answered as follows when asked about whether the Power of Siberia II pipeline had been put on hold: “The search for mutually beneficial common points, deepened integration of interests, achievement of mutual success is a consensus that has been reached by heads of the two countries. We are ready to cooperate with Russia for implementation of this important consensus.” This sort of statement is typical of Chinese diplomats and doesn’t really say anything.

The same goes for Kremlin spokesman Dmitry Peskov’s response when asked about China’s requested prices: “Regarding the aspects of commercial talks that are underway, they are obviously out of public view. This is absolutely normal that each country protects its own interests. And here the talks will continue as the political will of the two countries’ leadership for that is in place. Whereas the agreement of commercial issues will continue and we have no doubt that all necessary agreements will be reached.”

Neither spokesperson denied the report about their pricing dispute though and instead deflected from this subject by reaffirming their joint desire to reach a deal on the Power of Siberia II pipeline. This approach is understandable since both countries feel uncomfortable with a third party raising awareness of their alleged disagreements on this megaproject. It would also violate the spirit of their strategic partnership to speak publicly about differences of opinion on sensitive subjects such as this one.

Analysts aren’t diplomats though, with the former’s job being to calmly interpret the dynamics of disputes between friendly countries while the latter’s is to downplay them for appearance’s sake. Contrary to what many of these two’s friends and foes alike sincerely believe, Russia and China aren’t “allies” in the sense of being willing to sacrifice their national interests for the other’s sake, with their ties being better described as an Entente whose shared goal is to accelerate multipolar processes.

Their dynamics are solid, though some serious disagreements still exist between them on sensitive issues such as Kashmir and the South China Sea, with Russia supporting India’s claims over the former that include Chinese-controlled Aksai Chin and backing Vietnam’s maritime claims over the latter via UNCLOS. They’ve responsibly managed these differences by putting them aside in order to not impede the shared goal that they’re pursuing so there’s no reason not to expect them to do the same with this dispute.

About that, China naturally wants to pay the lowest price possible while Russia wants to sell at the highest one, but only the first has real negotiating leveraging right now since the second has no realistic alternative for replacing its pipeline gas’ lost European market than China. Russia’s strategic ties with the Taliban could in theory advance its plans to build a pipeline to Pakistan, which President Putin spoke about only once in September 2022, but that country is bankrupt and nowhere near as large of a market.

It's for this reason why the expert that the Financial Times interviewed concluded that “China believes time’s on its side. It has room to wait to squeeze the best conditions out of the Russians and wait for attention on the China-Russia relationship to move elsewhere. The pipeline can be built rather quickly, since the gasfields are already developed. Ultimately the Russians don’t have any other option to market this gas.” For as logical as this sounds, however, there’s a compelling counterpoint in Russia’s favor.

The inevitable end of the NATO-Russian proxy war in Ukraine, whenever that might be, will predictably see an intensification of the Sino-US New Cold War competition in Asia. While the US will be less successful pressuring countries to distance themselves from China due to their complex economic interdependence, it could still more seriously threaten its systemic rival’s maritime energy supply chains. Reliable pipeline gas from neighboring Russia would appear much more attractive to China in that event.

Just like China believes that time is on its side, so too might Russia believe the same, each for their own reasons. Neither wants to budge on their respective positions because they expect that their counterpart will eventually concede to their requested price. Russia doesn’t want to enter into a grossly lopsided energy deal with China out of desperation for a few extra bucks while China wants to pay the most privileged prices possible in exchange for opening up its massive market to Russian pipeline gas.

There’s no urgency for either to change their stance since Russia doesn’t need the cash flow that badly while China is still exploring diplomatic means for managing its tensions with the US and ideally averting the scenario where its systemic rival seriously considers imposing a de facto maritime energy blockade. Unless something drastically changes or there’s more to this than the public is privy to, such as a speculative quid pro quo for one conceding to the other, then this impasse is expected to continue.