Summary of Key Points
Recently, Russia officially renamed the planned second major natural gas pipeline between China and Russia, "Power of Siberia 2," to "Power of Lake Baikal." This pipeline has an annual gas transmission capacity of 50 billion cubic meters, which is larger than that of the already operational East Route pipeline. It originates from gas fields in western Siberia, crosses Mongolia, and enters northern China directly from Inner Mongolia. Many people's first concern is whether the transit through a third country could become a bottleneck. However, a detailed analysis of the interests of Russia, China, and Mongolia, as well as the realities of China's natural gas market, reveals that Mongolia, although it controls the geographical "valve" for gas transmission, does not actually have the courage to shut it down at will. If Russia were to deliberately cut off the gas supply, it would be at a significant economic loss. China's own diversified gas supply system can also handle any short-term disruptions. In fact, the route via Mongolia is much more cost-effective than the previously considered options that would have passed through Xinjiang and the northeastern region. The real risk to be guarded against is not a sudden gas cut-off by Mongolia, but rather a situation where Russia's gas supply to China becomes too dominant, potentially tying China's energy supply to a single source.
Detailed and Easy-to-Understand Explanation
1. Why Choose the Longer Route via Mongolia Instead of a Direct Route?
Many people wonder why China and Russia would choose a longer route via Mongolia when they share a border. There were two proposed routes that did not require a third country for transit, but both had significant drawbacks:
- The first route, from the Altai region in Russia to Xinjiang, seemed shorter, but Xinjiang is already a major natural gas production area and the primary entry point for gas from Central Asia. Adding another 50 billion cubic meters of Russian gas would mean incurring additional transportation costs. Moreover, the Altai region is characterized by high mountains and is a World Natural Heritage site, making the construction of large-diameter pipelines extremely difficult and costly.
- The second route would have followed the existing East Route through Heilongjiang, but the capacity of the East Route is already fully occupied by long-term contracts. To accommodate the additional gas, Russia would have to build thousands of kilometers of new pipelines within its territory and then transport the gas another thousand kilometers to the Beijing-Tianjin-Hebei region, resulting in further transportation expenses.
The route via Mongolia, on the other hand, faces much fewer construction obstacles due to the open grasslands and deserts in Mongolia. The pipeline enters China from Inner Mongolia and directly reaches key northern markets such as Beijing-Tianjin-Hebei and Shandong, connecting to the existing Shaanxi-Beijing gas pipeline network, thus saving on domestic infrastructure investment and long-term operating costs.
2. Mongolia's "Control Over Gas Supply" Is Not a Real Threat
There are concerns that Mongolia might suddenly shut off the gas supply to pressure China, but this is not feasible. Mongolia's economy is heavily dependent on China: its annual foreign trade volume is only $27 billion, with nearly 70% of its trade coming from China, and 90% of its export revenue comes from Chinese purchases of coal and copper ore. If China were to slow down customs clearance, Mongolia's mining industries would suffer, leading to job losses and a financial crisis. Additionally, 97% of Mongolia's gasoline and diesel is supplied by Russia. If Russia were to restrict fuel exports, Mongolia's gas stations would face shortages, and even coal transport trucks would be unable to get fuel.
3. Russia Would Not Benefit from Encouraging Mongolia to Cut Off Gas Supply
Some worry that Russia might use its influence over Mongolia to force a gas cut-off, but this would be counterproductive for Russia. More than half of Russia's natural gas is currently sold to Europe. With the Russia-Ukraine conflict, European gas imports have dropped significantly, leaving the West Siberia gas fields with excess capacity. China is the only country capable of absorbing such a large volume of gas annually. Moreover, natural gas pipelines are specialized and cannot be easily redirected to other markets. If Russia were to cut off the supply, it would lose billions in foreign exchange revenue and waste billions in pipeline construction costs. Russia is in a position of financial distress and would not benefit from such a move.
4. China Can Handle Short-Term Disruptions
Even if there were a temporary disruption in gas supply, China's energy system is well-equipped to handle it. The 50 billion cubic meters from this pipeline account for only 11% of China's annual natural gas demand. China produces over 260 billion cubic meters domestically and also imports gas from Central Asia and Myanmar, as well as LNG from Australia and Qatar. China's gas storage capacity exceeds 50 billion cubic meters. In the event of a temporary disruption during peak winter demand, by releasing stored gas and adjusting imports from Central Asia and LNG, prices might rise slightly, but a nationwide gas shortage or heating disruptions would be unlikely.
5. The Real Risk Lies in Over-reliance on Russian Gas
The real long-term risk is becoming too dependent on Russian gas. China has been cautious in its approach to this project, avoiding rushing the construction. If the East Route is expanded and combined with the Power of Lake Baikal pipeline, Russia's annual gas supply to China could exceed 100 billion cubic meters. Russian gas is cheaper than gas from Central Asia and imported LNG. Over-reliance on Russian gas could lead to the displacement of other, more expensive sources, making China's energy supply vulnerable to Russian influence. By maintaining a diversified supply strategy, China ensures that a single pipeline via Mongolia does not become a strategic weakness. By clearly defining transit fees and compensation rules in contracts, China can ensure a stable and profitable energy supply.