Russia plans to build a new gas pipeline through Siberia to deliver fuel to China. The Power of Siberia 2 pipeline could help Russia overcome lost customers following its invasion of Ukraine and offer China a more diversified mix of energy options.
The planned pipeline will transport 50 billion cubic meters of gas per year from reserves in Russian Siberia, across Mongolia to Northern China. The deal will last 30 years, and transactions will be made in Russian rubles and Chinese yuan, making the agreement immune from U.S. sanctions. However, the two countries have not yet announced an agreement on the price China will pay for the gas, according to the Intefax news group.
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China has “enormous leverage,” said Gabriel Collins, a research fellow at the Baker Institute for Public Policy at Rice University.
“Russia needs China. China does not need Russia,” Collins told Straight Arrow News.
Russia’s oil and gas sector faced a major downturn after the country invaded Ukraine in 2022. European countries, previously the largest importers of Russian gas, looked for other suppliers, and U.S. sanctions limited the global market for Russian exports. Meanwhile, China continues to expand its manufacturing capacity and enter the artificial intelligence race, pushing up electricity demand.
What are the benefits for Russia and China?
Russian gas exports to Europe fell from 17.5 billion cubic feet per day in 2021 to only 6.3 billion in 2024, according to data compiled by the U.S. Energy Information Administration. Over that same period, gas exports to China have increased from 1.6 billion to 4.1 billion cubic feet per day.
The first Power of Siberia pipeline opened in 2019. The new agreement will also increase Russian gas exports on the existing pipeline by about 16% to 44 billion cubic meters per year.
The deal is “a necessity” for Russia, Collins said. In addition to the pure economic need to generate revenue by selling gas, “the Russians want to create a narrative that they can outlast the U.S,” Collins told SAN.
China, on the other hand, is searching for a “diversified energy sourcing portfolio,” according to Collins.
Over the past two decades, electricity demand in China has increased by more than 600%. Collins said much of China’s additional gas imports from Russia would be used to generate even more electricity from gas-fired power plants.
“China, India and others in the Asia-Pacific region are significantly expanding their natural gas consumption to support industrialization and urbanization,” said Felix Chang, a senior fellow at the Foreign Policy Research Institute.
But while Russia grows more dependent on exports to China, Russian gas remains a relatively small portion of China’s broader energy portfolio.
What does the Power of Siberia 2 pipeline mean for the U.S. and Europe?
Chang told SAN in an email that the Power of Siberia 2 has a planned capacity roughly equivalent to the Nord Stream 2 pipeline from Russia to Germany, before it was sabotaged in 2022.
By shifting that gas supply to China, Collins said the new pipeline will, “formalize that this gas is never going to come back to Europe.”
Europe’s energy transition to technology like wind and solar aims to lessen long-term dependence on gas, but the speed of that transition remains uncertain. Collins said that barring any rapid technological change that makes Europe’s net-zero ambitions more viable, European countries might sign more long-term agreements to import liquified natural gas from the U.S.
More than any impact on the U.S. oil and gas industry, the Russia-China gas pipeline deal demonstrates the limits of U.S. sanction policy.
Sanctions are “this constant game of cat and mouse,” Collins said. Countries seek ways to subvert the monetary restrictions that the U.S. treasury can enact because the dollar is the world’s dominant currency. The Power of Siberia 2 pipeline is a prime example of how large economies such as China can avoid U.S. sanctions.
How might the Russia-China gas deal play out?
The CEO of Russia’s state-owned oil and gas company Gazprom, Alexei Miller, did not publicly disclose any financial details, but he said the price paid by China will be lower than what European customers have paid. “[The] Chinese market is closer, logistics expenses are lower,” Miller said, as reported by Interfax.
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Russian gas exports to China have quadrupled since 2020, as exports to Europe have declined.
Earlier this year, Russian gas exports to Europe sold for $320 per 1,000 cubic meters, while China paid $250, according to Chang.
Despite the potential benefits, Chang said both Russia and China have reasons to be hesitant about deepening energy ties.
For officials in Moscow, Chang said, “wariness is rooted in the perception that China is surpassing Russia economically and technologically.” In the past, Russia has resisted a deal like Power of Siberia 2, preferring a gas export pipeline with multiple sections that could divert fuel to other markets “should relations sour” with Beijing, Chang said.
But China is also likely concerned that Russia has a history of using energy as a geopolitical lever of control and cutting off the flow of gas — most notably in Ukraine in 2008 — said Chang, adding that it’s possible Russia could take “a similar approach in its dealings with China.”
“For the moment, such concerns may be secondary to both nations, as they continue to align in opposition to the West,” Chang told SAN.
