Russia Forced to Submit to China on Key Project, Report Says

China appears to be dictating terms to Russia on the construction of the Power of Siberia 2 gas pipeline, a strategic project that has also been touted as a symbol of cooperation, according to a report in the South China Morning Post.

This shift in gas supplies would significantly enhance Beijing's energy security. However, the negotiations are complex, with a Russian source telling Hong Kong newspaper: "It's a specific presidential-level of pressure. It's about cheaper payment. They can demand deep discounts."

While China and Russia describe each other as strategic partners and are often allied in countering the United States and Western interests around the globe, their bilateral relationship is more complex.China's economy is almost 10 times the size of Russia's, and that gives it significant leverage even as it seeks Russia's natural resources to power its growth.

The Post reported likely delays in constructing the Russian natural gas project, a crucial financial lifeline for Moscow, particularly as the war in Ukraine puts it under Western sanctions and raises doubts over long-term relationships with European customers.

"Construction of one of Russia's key natural gas projects to ensure a financial lifeline overseas is likely to be slower than expected as China seeks to leverage its 'bargaining stance,'" the paper said, citing sources in both countries..

If completed, the PS2 pipeline is expected to reroute 50 billion cubic meters (1.8 trillion cubic feet) of natural gas annually from Europe to northern China. Its projected export capacity is comparable to the Nord Stream pipelines' 55 billion cubic meters capacity to Germany, which were sabotaged in 2022 with the attackers still unidentified.

A source told the paper that Beijing insists on a risk-free, cost-free approach to construction, expecting Russia to bear the entire expense.

Russian President Vladimir Putin is under enormous pressure to proceed with the pipeline construction, it said, because failure to do so would lead to substantial gas wastage and financial losses for Russia.

Genevieve Donnellon-May, a researcher at Oxford Global Society, writing for Australian think tank the Lowy Institute, said that given concerns over Russia's long-term foreign policy trajectory, Beijing is unlikely to finance the project upfront and remains cautious of Moscow potentially weaponizing energy supplies against China.

"Due to concerns about the long-term trajectory of Russian foreign policy, Beijing is unlikely to finance the project up-front. And China will remain wary of attempts by Moscow to weaponize energy supplies against Beijing," wrote Donnellon-May.

However, Munkhnaran Bayarlkhagva, a former official on Mongolia's National Security Council, expressed skepticism about the timeline, telling The Post that discussions on pricing, tariffs and taxes have yet to begin, indicating potential delays beyond the planned 2024 construction start.

Russia is finalizing the route of the pipeline, Deputy Prime Minister Alexander Novak wrote in the energy ministry's in-house magazine in September, according to Reuters.

The pipeline was assumed to pass near several eastern Siberian cities, through the Buryatia region south of Lake Baikal, reaching the Mongolian border near Naushki, he said.