As the Russian-Chinese natural gas project advances, Mongolia's position and attitude as a potential transit country becomes particularly critical. In the face of potentially huge economic benefits, the Mongolian government is actively mediating, but the progress of this project is still fraught with uncertainties. Moreover, despite a Russian-Chinese friendship that "knows no bounds," China is in no hurry to build the Power of Siberia 2, as Chinese influence on prices increases the longer construction is delayed.
Although the China-Russia gas project has not yet been signed, Mongolia's foreign minister recently took the initiative to meet with Chinese Foreign Minister Wang Yi to express his clear position on the project. According to Global News, Foreign Minister Wang Yi was invited by Mongolia to meet with its foreign minister during the Munich Security Conference.
Russia-China pipeline (© Adobe Stock/alexmlx)
Given the Mongolian prime minister's recent invitation to accelerate the advancement of China-Russia cooperation projects, including pipeline links and the construction of economic corridors, it is not difficult to assume that the meeting between the two foreign ministers will continue to focus on the gas project.
In fact, this project could be of great interest to Mongolia because of its enormous economic benefits.
The project, known as Power of Siberia 2 gas, is intended to connect the energy networks of China and Russia. However, although many agreements have been signed between the two countries, the details of cooperation and contracts for the project have not yet been agreed upon.
There are two main reasons for this: ongoing negotiations on the price of natural gas and the construction of a gas transportation pipeline. In particular, Russia's insistence that the construction of this pipeline go through Mongolia means that Mongolia will have the opportunity to receive substantial transit fees from it, amounting to about $1 billion a year. This is a rather attractive figure for Mongolia, whose annual gross domestic product is just over $10 billion.
In addition, Mongolia's foreign policy questions the credibility of its commitments. Although Mongolia is situated between China and Russia, its foreign policy is characterized by a "wallowing" attitude. Since the United States launched its Indo-Pacific strategy, Mongolia has established a strategic partnership with the United States and received U.S. assistance, while conducting frequent military exercises with the United States. In addition, on the economic and trade front, Mongolia also unilaterally tore up the coal agreement with China, demonstrating its flexibility in pursuing its own interests.
To push the pipeline project to start as soon as possible, Mongolia's foreign minister released much goodwill during the talks. He stressed that relations between China and Mongolia are at the highest level and hinted that cooperation between the two countries will be strengthened in coal trade and tourism. However, given Mongolia's past diplomatic behavior and the complexity of the great powers' game, China has yet to carefully evaluate this project. The final decision will depend on a combination of factors, not just the Mongolian foreign minister's statement.
The Power of Siberia 2 gas pipeline
With the glaring loss of Russia's most attractive natural gas market in Europe following its invasion of Ukraine nearly two years ago, the construction of gas export pipelines to ensure a financial lifeline for the war-torn country has become imperative to Russia's raison d'être.
The Power of Siberia 2 gas pipeline is the key natural gas project behind Vladimir Putin's push to commence construction in 2024. Indeed, Putin seems to be under “enormous pressure” to build the pipeline or otherwise “a huge amount of gas” will be wasted and Russia will lose money. Putin himself has said that Russia could deliver 98 billion cubic meters of gas per year.
Yet despite a Russian - Chinese friendship that knows "no limits" China is in no hurry to construct Power of Siberia 2, as Chinese leverage over price increases the longer construction is delayed.
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”, according to a Russian source and Chinese analysts.
Bolstering China's position vis-a-vis Russia is its diversification strategy aiming to ensure a stable and reliable supply of energy from numerous sources, as China imports from Australia, Central Asia and Russia.”
“[Beijing] understands really well their bargaining power and the country is in a much stronger position,” a source said. “It’s a specific presidential-level of pressure. It’s about cheaper payment. They can demand deep discounts.”
“In terms of construction, [Beijing] wants to make sure that they have no risks and no costs. Russia is the side that foots the entire bill,” added a source, who was unwilling to disclose their name due to the sensitivity of the issue.
So Power of SIberia 2, this long-touted symbol of bilateral cooperation between Russia and China, will be sorely tested in the new year. And if it can survive the stress and strain of interminable delay, China will have enhanced its security of supply on the cheap -- the ghosts of Putin's imperial strategy have come home to roost.
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