Price of Russian gas supply to China via Power of Siberia 2 to be 'market-based': Putin

Russian President Vladimir Putin said Sept. 3 that the price of gas deliveries to China via the planned Power of Siberia 2 pipeline would be "market-based" and that the agreement on the new link was "mutually beneficial".

Putin, speaking to reporters from Beijing, said the pricing formula for deliveries via Power of Siberia 2 was "purely objective" in nature.

His comments come after Russia's Gazprom and China's CNPC signed a legally binding memorandum on the project designed to send 50 Bcm/year of Russian gas to China via Mongolia.

The pipeline has been on the drawing board for a number of years, but progress on reaching an agreement has been slow, with price seen as the main stumbling block to a deal.

Putin acknowledged the time it took to reach an agreement on the new pipeline.

"This is work that has been carried out for a long time, and we discussed it with our partners for a long time," he said, according to a transcript posted to the Kremlin website.

"The negotiating parties have finally found a consensus. There is no charity here on either side -- these are mutually beneficial agreements. They are implemented on market principles, based on market principles in this region," he said.

"And the price for this product is also formulated not based on today's prices, but according to a certain formula, and this formula is purely objective in nature, and market-based."

Putin also said that the agreement had not been timed to coincide with his visit to Beijing. "This is simply the result of many years of work by economic entities on both sides," he said.

'Competitive advantages'

Putin added that the Power of Siberia 2 agreement would create "competitive advantages" for China. "They will receive the product at balanced market prices, not at some inflated ones. And, most importantly, this is a stable, reliable supply," he said.

"Everyone is satisfied, everyone is happy with this result, to be honest, and so am I."

Gazprom CEO Alexei Miller announced the deal in comments to reporters in Beijing on Sept. 2. Miller said that the commercial terms of deliveries would be finalized in due course.

As well as the memorandum on the Power of Siberia 2 project, Gazprom and CNPC also agreed to increase gas deliveries through the first Power of Siberia pipeline.

Gas supplies via the Power of Siberia pipeline -- which began operations in December 2019 -- will be raised to 44 Bcm/year from its current design capacity of 38 Bcm/year.

The two companies also agreed to expand gas deliveries along the Far Eastern route to 12 Bcm/year from 10 Bcm/year, Miller said.

Supplies via the Far Eastern route are set to begin in 2027.

The total volume of pipeline gas that could be delivered from Russia to China once all three projects are at capacity would therefore be 106 Bcm/year.

"Gazprom is one of our leading companies, and new markets are emerging for it," Putin said Sept. 3.

"Through Mongolia we will have 50 Bcm. What we have now is 38 [Bcm], and then a couple more routes will also increase [the volume]," he said.

"In total, it will be over 100 Bcm of gas."