Kathrine Frich
When a massive company loses its biggest clients, executives usually scramble to find new buyers right away.
But replacement customers are rarely foolish.
They know exactly how desperate the situation is, and they will squeeze every last penny out of the final deal.
A hard bargain
Russian President Vladimir Putin traveled to Beijing seeking final approval for the massive Power of Siberia 2 gas pipeline.
The sales pitch failed. The Moscow Times reports that Beijing refuses to sign off on the project.
They also made brutal financial demands. Bloomberg sources indicate Beijing wants gas prices slashed to match the Russian domestic market.
Slashing the price
That would mean paying around $50 per 1,000 cubic meters. This is a staggering five-fold drop from the $258 that China currently pays for Russian energy.
The proposed rate is also twelve times lower than what European countries used to pay Moscow.
Russian negotiators hoped to finalize a set price by September. A source familiar with the talks told the Financial Times that a quick agreement seems highly unlikely.
China believes its national gas consumption has already peaked. They plan to rely on their own huge coal reserves and new renewable energy instead.
One-sided relationship
Despite the stall, Russian officials tried to paint a positive picture. Advisor Yuri Ushakov said the issue “will be discussed in great detail.”
Ushakov insisted that Moscow “retains its role as a reliable supplier” to the Asian giant.
The reality on the ground looks very different. Moscow relies on its neighbor for over ninety percent of the technology banned by Western sanctions.
Experts see a clear power imbalance. Alexander Gabuyev, director of the Carnegie Center for Russian and Eurasian Studies, noted that Beijing holds all the cards.
Looking for revenue
“China is in a very favorable position because Russia is forced to turn to it time and time again,” Gabuyev explained.
Even if the pipeline gets built, the financial returns will be much smaller. At full capacity, the route would export roughly 100 billion cubic meters annually.
That represents just a fraction of the massive volume Russia previously pumped into the European market.
Vita Spivak from the consulting firm Gatehouse summed up the dynamic perfectly. “China’s interest in Russia stems from the strategic advantages Moscow provides. It guarantees [China] energy security, access to key resources, and access to the Arctic. But of course, Russia needs China more than they need it,” Spivak said.
Sources: The Moscow Times, Bloomberg, Financial Times
