Putin Presses for China Gas Pipeline Deal During Mongolia Visit

During a recent visit to Mongolia, Russian President Vladimir Putin made a renewed effort to advance the ambitious plan for a gas pipeline connecting Russia to China. This proposed pipeline, which would traverse Mongolia, is seen as a strategic move to reduce U.S. energy influence over Beijing.

At a joint press conference in Ulaanbaatar on Tuesday, Putin highlighted the progress in negotiations. He announced that the preliminary documents for the Soyuz Vostok gas pipeline extension, a crucial segment of the larger Power of Siberia 2 (PS-2) project, have been completed and are now under state expert appraisal.

Strategic Significance

The Soyuz Vostok extension is intended to transport approximately 50 billion cubic meters (bcm) of natural gas annually from Russia to China. This project represents a significant shift in Russian energy exports, aimed at compensating for the loss of European markets following the damage to the Nord Stream 1 pipeline by explosions last year.

Currently, Russia exports gas to China through the Power of Siberia 1 pipeline, delivering 22.7 bcm in 2023 with plans to increase this to 38 bcm annually by 2025. The PS-2 pipeline is seen as a pivotal part of Russia's strategy to redirect its energy exports to Asia.

"China is emerging as a key alternative market for Russian gas that was previously destined for Europe," observed Erica Downs, a senior research scholar at Columbia University’s Center on Global Energy Policy. "Putin is likely to continue highlighting any progress with Mongolian officials as a sign of success."

Mongolian and Chinese Involvement

Although the PS-2 project has been in discussion for years, a final agreement remains elusive. Mongolia has not yet approved the pipeline’s passage through its territory, and recent developments suggest that the country may not prioritize the project in its national development plans.

"The pipeline could significantly impact U.S. LNG exports to China, thereby diminishing U.S. energy leverage," said Joseph Webster, a senior fellow at the Atlantic Council's Global Energy Center. He noted that Beijing aims to reduce its reliance on foreign energy by boosting its own renewable and nuclear energy production.

A recent U.S. Congressional Research Service report indicates that PS-2 could enhance China’s negotiating position with the U.S., as the country has been the sixth largest LNG exporter to China between 2016 and 2023. Furthermore, the report suggests that PS-2 might help Russia circumvent Western sanctions due to its nature as a pipeline trade rather than a direct export.

Renewed Push

During his visit, Putin also underscored potential benefits for Mongolia, suggesting that the pipeline could not only serve as a transit route but also supply Mongolian consumers with affordable gas. This move comes in the wake of Mongolia’s decision in August to exclude the pipeline from its national development plans through 2028.

Diana Furchtgott-Roth, director of the Center for Energy, Climate and Environment at the Heritage Foundation, believes Putin's push is a demonstration of strength and an effort to secure a market for Russian energy. She emphasizes that the deal remains tentative pending Mongolian approval.

Mongolian President Ukhnaagiin Khurelsukh did not confirm the pipeline deal’s advancement during their talks, and the agreements signed on Tuesday focused on oil and fuel supplies without mentioning the pipeline.

Geopolitical Dynamics

Mongolia relies heavily on Russian energy, importing 95% of its petroleum products and over 20% of its electricity. This dependency likely influenced the decision not to arrest Putin despite the International Criminal Court's warrant related to the Ukraine conflict.

According to Erica Downs, Mongolia might not make a final decision on PS-2 soon, as China is not rushing the project. The exclusion of PS-2 from Mongolia's spending plans suggests that the project might not progress before 2028.

Recent talks between Russia and China have been marred by disagreements over pricing. Russian Deputy Prime Minister Alexander Novak had previously indicated that a contract on PS-2 might be signed soon, but the deal remains stalled.

Chinese Ambassador to Russia Zhang Hanhui recently affirmed that China and Russia will eventually launch the PS-2 project despite ongoing challenges. Meanwhile, Chinese Vice President Han Zheng is set to visit Mongolia from September 4 to 8, potentially discussing the pipeline project.

Thomas Duesterberg of the Hudson Institute notes that the pipeline's fate is closely tied to broader geopolitical competition, with both Russia and China vying for influence in Mongolia. This competition is likely contributing to the current delay in finalizing the deal.