Since last year, the Russian side has sent several waves of people to visit China to discuss with China on the construction of the "Siberia-2" pipeline, but each time they have taken advantage of the excitement and returned disappointed. Even Mongolia on the side began to be anxious, expressing its willingness to fully cooperate with China and Russia in order to dispel China's concerns and let the project land as soon as possible. And the reason why the Russian side is very interested in this project is also very simple.
As we all know, since the outbreak of the Russian-Ukrainian conflict, the United States and the West have implemented a comprehensive containment of the Russian economy, and as the Ukrainian army is becoming more and more powerless on the battlefield, the West has also begun to step up the introduction of new policies against Russia, such as restricting Russia's metal exports, to achieve the goal of sanctioning Russia. So we can speculate that in the short term, there will be no significant change in the situation with sanctions against Russia.
Against this backdrop, Russia's top priority is to ensure the smooth functioning of the Russian economy, to provide a steady stream of support to the front line, and to ensure that the normal life of the people in the country is not affected.
[China and Russia have not yet reached an agreement on the construction of the Siberian Pipeline No. 2]
By building the Power of Siberia-2 pipeline, which supplies natural gas to China and other Asian countries, Russia will be able to diversify its energy export markets and reduce its dependence on exports due to geopolitical risks. At the same time, through the new pipeline project, Russia will be able to receive an advance payment from China, alleviating the immediate need. For example, when the "Siberia-1" pipeline was built, Russia first received an advance payment of $25 billion from us.
In addition, Russian Deputy Energy Minister Sergei Mochhalnikov also revealed that once Russia and China agree on the price, an agreement on the construction of the "Power of Siberia-2" pipeline will be signed. And in March last year, Russian President Vladimir Putin said that he had agreed on almost all the conditions of the project. As soon as this connection was made, the outside world speculated that the biggest problem with the delay in the construction of this pipeline was the problem of pricing.
But from the mouth of Zhang Hanhui, the Chinese ambassador to Russia, we got a different answer.
[Chinese Ambassador to Russia Zhang Hanhui]
Recently, Russian media Ambassador Zhang Hanhui conducted an exclusive interview, during which he talked about the question of why the construction of the "Siberia 2" has been delayed for a long time, and hoped to get accurate information from the Chinese side, but the result was unexpected. Ambassador Zhang Hanhui said that the reason why this project has been delayed for so long is not only because of gas prices.
Ambassador Zhang Hanhui then explained that in the early stages of the project, a thorough, scientific and systematic demonstration is extremely necessary. As a result, companies from both countries are currently actively discussing a range of project issues, including technical, commercial aspects and cooperation models. For example, the Chinese side proposed that the mining and processing processes could be combined into a single unit to maximize the benefits of the project.
In other words, the Chinese side has a more long-term plan for this project, and not just to solve the problem for the Russian side. In fact, China's consideration is very necessary.
In terms of cost, the construction of the "Siberian 2" pipeline requires up to 67 billion US dollars of direct investment, as well as 27 billion US dollars of investment in metallurgy, cement and chemical industries, coupled with Siberia's high plateau, harsh climate, follow-up maintenance must also be followed, the total investment is expected to reach 400 billion US dollars. And this huge amount, whether it is funded by China alone or jointly by China and Russia, will be a significant expenditure.
[Under Western sanctions, Russia's natural gas business revenue has plummeted]
Although our demand for natural gas is indeed huge, importing 150 billion cubic meters every year, in order to get rid of the dependence on a single source, in addition to cooperating with Russia, the mainland also imports natural gas from Turkmenistan and transfers to the construction of the China-Central Asia natural gas pipeline line D project.
In addition, China has signed a 27-year LNG transportation agreement with Qatar, under which Qatar will send 4 million tons of LNG to China annually. So, China's natural gas imports from Russia are actually only a small part. And as China is likely to rely more on renewables in the future, this could lead to a gradual decline in domestic demand for natural gas, which in turn will reduce imports of Russian gas.
In addition, the pipeline will transit through Mongolia, and the pipeline line in Mongolia is 960 kilometers long. Considering Mongolia's long-standing "third neighbor" policy, we are also concerned that the pipeline is at risk of being cut off or facing high tolls. Against this backdrop, if we simply bet on natural gas transportation, we are likely to miss the yield or waste our investment. In short, for the Chinese side, the political implications of the project far outweigh the economic benefits.
[China and Qatar sign natural gas agreement]
By integrating the extraction, transportation and processing of natural gas, intermediate links can be eliminated and the overall cost can be reduced. In addition, by controlling the entire chain from upstream to downstream, it will help China gain greater bargaining power in terms of price negotiations, supply stability, etc. More importantly, by controlling the entire chain from natural gas extraction to terminal processing, China can reduce its dependence on external factors and enhance the autonomy and security of its energy strategy. In general, we have to be involved in the whole process.
At present, in the choice of routes, the Chinese side has taken a big step back and promised to transit through Mongolia. But it is precisely because of the scale of this project that we have to plan from the perspective of mutual benefit and win-win results. As for Russia's current situation, China will not sit idly by, but China will not leave behind any of the hidden dangers that may exist in the so-called business talks.