Putin makes renewed push for gas pipeline deal with China 

washington — During his recent trip to Mongolia, Russian President Vladimir Putin promoted a plan to build a pipeline from his country to China. The pipeline, which could weaken U.S. energy leverage over Beijing, would have to pass through Mongolia.

In a joint press conference held after talks in Ulaanbaatar on Tuesday, Putin said cooperation in the gas sector looks promising.

The two sides have completed drawing up documents to design the Soyuz Vostok gas pipeline extension in Mongolia and it is “at the stage of state expert appraisal and assessment,” Putin said.

New export market

The Soyuz Vostok gas pipeline extension is part of the Power of Siberia 2 (PS-2) pipeline. The PS-2 pipeline would transport about 50 billion cubic meters (bcm) of natural gas annually to China when completed.

It is seen as an effort by Moscow to divert gas that had been exported to Europe to Asia after the Nord Stream 1 pipeline under the Baltic Sea was damaged by explosions last year.

Russia uses the Power of Siberia 1 pipeline to deliver gas to China, exporting 22.7 bcm in 2023. It aims to raise the supplies to 38 bcm annually by 2025.

“China is really Russia’s option to find a customer for a sizable portion of the pipeline gas it previously sent to Europe,” said Erica Downs, a senior research scholar focusing on Chinese energy markets at the Center on Global Energy Policy at Columbia University.

“Putin will continue to champion the project and look for ways to characterize any discussion of the project with Mongolian officials as progress,” she continued.

Beijing and Moscow have been in talks for years over PS-2, but a final agreement has not been reached. Mongolia also has not made a final approval for the pipeline to pass through its land.

“The pipeline, if built, would reduce U.S. LNG [liquefied natural gas] exports to China,” further weakening U.S. energy leverage over China that is already declining, said Joseph Webster, senior fellow at the Atlantic Council’s Global Energy Center.

Beijing seeks to reduce foreign energy dependence by “replacing imports with indigenously produced energy” including solar, wind, and nuclear energy, Webster said.

A report by the U.S. Congressional Research Service on Aug. 28 said, “PS-2 could strengthen China’s bargaining position” with the U.S. if it receives additional Russian natural gas. The U.S. has been the sixth largest exporter of LNG to China between 2016 and 2023, the report noted.

The report said PS-2 could also help Russia avoid sanctions imposed by the West because “PS-2 would involve pipeline trade of natural gas” and “no existing sanctions would impact this trade.”

Renewed push

Putin made an extra effort to promote the pipeline deal at the press conference with Mongolian President Ukhnaagiin Khurelsukh.

He said Russia and Mongolia are “not only talking about the transit of Russian gas across Mongolia” but “the potential delivery of gas to Mongolian consumers.”

Ahead of the talks, Putin said Mongolia initially “preferred to limit themselves to being just a transit country” for the pipeline but is now considering a deal to obtain “cheap pipeline gas to support the development of their economy and infrastructure.”

Putin made the comments in a written interview with Mongolia’s Onoodor newspaper, according to the Kremlin on Monday.

Putin’s renewed push to boost PS2 came after Mongolia in August excluded the pipeline project in its national development plan through 2028.

Diana Furchtgott-Roth, director of the Center for Energy, Climate and Environment at the Heritage Foundation, said Putin made the remarks “to project strength” and because he “needs a market for his oil.”

“He wants to see what the West says,” and also “to see whether Mongolia changes its mind,” but the pipeline deal is still incomplete “until we get confirmation from Mongolia,” she said.

Khurelsukh did not confirm in his statements in the bilateral talks with Putin whether he agreed to allow the pipeline deal to proceed.

In a series of documents signed on Tuesday, Russia and Mongolia made agreements on the supplies of oil, petroleum products, and aviation fuel but did not mention any agreements on the pipeline deal.

China-Russia competition

Mongolia is heavily dependent on Russian energy, importing 95% of its petroleum products and more than 20% of electricity. A spokesperson for the Mongolian government told Politico on Tuesday that is why it did not arrest Putin when he was in the country.

The International Criminal Court issued a warrant for Putin’s arrest for crimes committed in Russia’s invasion of Ukraine. As a member country of the ICC, Mongolia was obligated to arrest him.

“Mongolia probably does not have to make a final decision about Power of Siberia 2 anytime soon because China is in no hurry to move forward with the project,” Downs said.

“The fact that Mongolia did not include Power of Siberia 2 in its next four-year spending plan indicates that it does not expect the project to move off the drawing board before 2028,” she said.

Russia also has been in talks with China about the project in recent months.

In May, Russian Deputy Prime Minister Alexander Novak said Beijing and Moscow are expected to sign a contract on the PS-2 gas pipeline “in the near future.”

But the pipeline deal between the two remained stalled over pricing demands by Beijing, the Financial Times reported in June.

On Wednesday, Chinese Ambassador to Russia Zhang Hanhui apparently told the Russian News Agency Tass on the sidelines of the Eastern Economic Forum in Vladivostok that Beijing and Moscow would eventually launch PS-2 despite difficulties surrounding the project.

“China always drives a hard bargain on the pricing of gas imports and wants to control as much as possible of the transportation network involved in its imports and exports,” said Thomas Duesterberg, senior fellow at Hudson Institute.

“Russia and China compete over influence in Mongolia, and the Russo-Mongolian deal is subject to close scrutiny because of these factors, and that likely explains the failure at this time to reach a deal,” he added.

Chinese Vice President Han Zheng will visit Mongolia from Sept. 4 to 8 after attending the Eastern Economic Forum held in Vladivostok, the Chinese Foreign Ministry announced on Tuesday.

It is uncertain, however, whether Beijing and Ulaanbaatar will discuss the PS-2 pipeline project.
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