China delivered a devastating blow to Russia’s economic prospects after refusing to commit to a Kremlin deal over future gas exports.
The Kremlin saw its gas revenues severely hit by its decision to invade Ukraine, as European countries started to introduce bans on Russian energy exports in the aftermath of the war.
Gas and oil pipeline flows to Europe have plummeted by more than eighty percent since 2022, with the state energy company Gazprom taking a US$6.9billion (£5.4billion) hit to its finances.
Russia has desperately sought to plug the gap by trying to strike a deal with Beijing for future gas deliveries.
This will entail building a new pipeline connecting Russia‘s Siberian gas fields with China.
The Power of Siberia 2 pipeline is projected to deliver 50 billion cubic metres of gas per year (bcm/y), which could make up half of Russia‘s current losses.
The Kremlin is desperate to get China on board, with the project one of the top agendas discussed during Vladimir Putin‘s May visit to Beijing.
However, it appears talks have stalled as a result of President Xi Jinping‘s tough stance over prices.
Sources close to the negotiations told the Financial Times Beijing was only prepared to pay around the same rates as Russia‘s heavily subsidised domestic prices and would not commit to buying large amounts of gas.
Russia‘s isolation in the world leaves it exposed and with very little choice but to bow to Beijing’s terms, experts argued.
Alexander Gabuev, director of the Carnegie Russia Eurasia Center in Berlin, said: “China believes time’s on its side. It has room to wait to squeeze the best conditions out of the Russians and wait for attention on the China-Russia relationship to move elsewhere.
“The pipeline can be built rather quickly, since the gas fields are already developed.
“Ultimately the Russians don’t have any other option to market this gas.”
China is already using its leverage over Russia to negotiate favourable terms for its gas purchases, paying much less than other countries.
Beijing forks out an average price of $4.4 per million British thermal units, compared with $10 for Myanmar and $5 for Uzbekistan – according to research carried out by Columbia’s CGEP in May.
The researchers analysed customs date for the period 2019 to 2021. In the same time span, Russia exported gas to Europe at about $10 per million Btu, according to data published by the Russian central bank.