Putin’s PRC Visit Failed to Advance Power of Siberia 2

Putin’s PRC Visit Failed to Advance Power of Siberia 2

Executive Summary:

• Shares of Gazprom dropped sharply after Russian President Vladimir Putin’s May visit to the People’s Republic of China (PRC) ended without progress on the Power of Siberia 2 natural gas pipeline.
• Gazprom lost about $1.4 billion in value on May 20 alone amid renewed doubts over Russian access to PRC gas markets. Russia is hoping to replace European markets for its natural gas—which largely closed after the Kremlin’s full-scale invasion of Ukraine—with the PRC’s. 
• Gazprom currently relies on Power of Siberia 1 to deliver its natural gas to the PRC, but it lacks the capacity to replace the volume of gas that flowed to Europe, intensifying pressure to reach a deal with the PRC on Power of Siberia 2. 
• The PRC is pushing for near-domestic gas prices and flexible volumes, while Russia insists on higher prices and “take-or-pay” guarantees. Even if an agreement is reached, Power of Siberia 2 would take years to build, and PRC demand would not fully offset lost European gas revenues.

Shares of Gazprom fell sharply on the Moscow stock exchange on May 20 at the end of Russian President Vladimir Putin’s two-day state visit to the People’s Republic of China (PRC). This trip was his fifth since the beginning of the war and the 25th during his presidency. Putin again failed to make progress on the construction of the Power of Siberia 2 gas pipeline, which would transport gas from the Yamal Peninsula in Russia to the northeastern PRC, using gas deposits that once supplied Europe via Nord Stream 1. The day Putin left the PRC, as it became clear he had made no progress on Power of Siberia 2, Gazprom securities fell by 3.5 percent to 119.06 rubles ($1.16) per share, resulting in a 100 billion ruble ($1.39 billion) loss. TMK, the company chosen to supply large-diameter pipes for the pipeline, saw its securities collapse by 6 percent (The Moscow Times, May 20).

Russia began discussing shipping its natural gas via the “western route” to the PRC about 20 years ago, well before signing a contract for Power of Siberia 1 in 2014 (The Moscow Times, September 2, 2025). Western sanctions following Russia’s 2014 invasion of Crimea prompted the Kremlin to more proactively seek cooperation with the PRC, including reaching an agreement on Power of Siberia 1, which became operational in 2019. Power of Siberia 1, however, does not have the capacity to replace Nord Stream 1, which Gazprom shut down in 2022 after Putin’s full-scale invasion of Ukraine. Power of Siberia 2 would be more than 2,485 miles long from its starting point in the Yamal Peninsula in the Arctic Circle to its terminus in the PRC’s east coast metropolitan regions. The pipeline’s Russian segment is 1,491 miles long, crossing the Siberian taiga before transiting almost 621 miles through the Mongolian steppe (ProFinance.Ru, May 20).

The PRC’s stalled acceptance of the pipeline proposal is a tangled, unresolved skein of geopolitical, market, and pricing issues. The global gas market is quite volatile because, unlike for oil, there is no group such as the Organization of the Petroleum Exporting Countries+ (OPEC+) stabilizing prices. Prices consequently fluctuate in response to news, especially related to geopolitics, resulting in sharply different regional costs. Gas in Asia has always been expensive, as it lacks pipeline networks, leaving maritime shipments of liquefied natural gas (LNG)—whose costs are higher than pipelines due to logistics and regasification costs—as the only method of supply. The European market was saturated with relatively cheap pipeline gas from Russia until Putin’s full-scale invasion of Ukraine in February 2022, causing progressively more severe sanctions restrictions and other disruptions, resulting in increasingly diminished European sales (Al’fa Investor, October 1, 2025). Europe is preparing to completely abandon Russian gas in 2027, further spurring Gazprom to seek increased sales to the PRC (Vzgliad, May 21).

Putin took five vice-premiers and ministers with him on his 39-strong delegation to the PRC—among them was Gazprom head, Aleksei Miller. While in Beijing, he spoke about the “limitless” prospects for Russia’s cooperation with the PRC and signed a “declaration on the construction of a multipolar world” with PRC General Secretary Xi Jinping, but nevertheless failed to secure new major contracts. None of the 40 documents signed during the visit related to oil and gas cooperation, and there was no mention of Power of Siberia 2 despite more than a decade of negotiations. The new pipeline, with an annual capacity of 50 billion cubic meters (bcm), is desperately needed by Gazprom now that it has lost its European market. 

Putin likely hoped that the chaos in global energy markets resulting from the Iran conflict would make the PRC more flexible in negotiations over Power of Siberia 2 gas prices because one-third of the PRC’s oil and 25 percent of its gas imports pass through the Strait of Hormuz, which has been largely closed since the start of the war (The Financial Times, May 19). Qatar, one of the largest liquefied-natural gas (LNG) producers, suffered substantial infrastructure damage, and the closure of the Strait of Hormuz created a gas shortage and soaring prices in both Asia and Europe (RIA Novosti, May 22). Still, the PRC would prefer to depend on Russian gas than on LNG from the United States or Australia (Rossiiskaia Gazeta, January 4).

The main stumbling block in Russia–PRC Power of Siberia 2 negotiations is the price of gas. The PRC’s state-owned China National Petroleum Corporation (CNPC) demanded that Power of Siberia 2 gas prices be reduced to a level close to Russia’s domestic rate, roughly $50 per thousand cubic meters (tcm), five times lower than the PRC now pays for Power of Siberia 1 gas ($258 per tcm), and 8.5 times less than the prices of Gazprom for other customers in the “far abroad” ($420 per tcm) (The Moscow Times, May 19). 

Gazprom said that the planned supply contract is for 30 years. It is presently unclear, however, whether the PRC will agree to buy the entire annual volume of gas of the pipeline’s capacity. Russia insists on fixed volumes—the “take or pay” principle—to guarantee itself long-term, stable income. The PRC, on the contrary, is seeking flexible conditions in case of falling domestic gas demand or the emergence of cheaper alternatives (Finance.mail.ru, May 20). 

Gazprom’s supplies to Europe reached 175–180 bcm at their peak in 2018–2019. More than 80 percent of Gazprom’s international sales went to Europe, its most profitable market. Under current plans to increase supplies via two existing pipelines to the PRC, Power of Siberia 1 and the Far Eastern Route, Gazprom will only replace less than a third of what it sold to Europe, “which intends to completely abandon Russian gas from the beginning of 2028” (The Moscow Times, September 2, 2025).

According to PRC customs data, bilateral trade between the PRC and Russia was $228 billion in 2025, down 6.9 percent from 2024. Putin acknowledged the decline but noted that bilateral trade had exceeded $200 billion “by a solid margin” for three years. Beyond energy trade, Russia currently imports more than 90 percent of its sanctioned technology through the PRC, up from about 80 percent in 2025 according to European officials (Bloomberg, May 18). Despite the lack of a final agreement, in September 2025, Gazprom signed a binding memorandum with CNPC on the construction of the Power of Siberia 2 and Soyuz Vostok (Union East) gas pipelines through Mongolia. According to Miller, the project could become the largest and most capital-intensive project in the global gas industry, with an estimated cost of $13.6 billion (Nezavisimaia Gazeta, May 20). Putin said, “Against the backdrop of the crisis in the Middle East, Russia still retains the role of a reliable supplier of resources, and China—a responsible consumer of these resources.” 

It is difficult to predict near-term gas demand in the PRC because the country has contradictory policies regarding the role of hydrocarbons in its fuel and energy matrix. The PRC still uses substantial amounts of coal, more than 50 percent of the country’s energy needs, even as it aggressively pursues renewable energy sources. Russia is already the largest gas supplier to the PRC. At the end of 2025, Russia provided approximately 27 percent of the PRC’s pipeline gas imports and 21 percent of its LNG imports (RBC, May 24). As for dramatically increasing imports of Russian gas, the PRC takes a careful approach to diversifying energy supplies, which some observers see as an unspoken rule that no single supplier should account for more than 20 percent of energy imports (Rossiiskaia Gazeta, May 25).

Russia is also facing rising competition for the PRC’s energy market from Central Asia.  The PRC, continuing to diversify its energy resources, is considering expanding its gas pipeline imports from Turkmenistan from the current 40 bcm per year up to 65 bcm annually. The PRC is investing in the development of Turkmenistan’s massive Galkynysh field, which could contribute an additional 10 bcm (Nebit-Gaz, March 23; see China Brief, May 11).

Russia remains positive about its energy future with the PRC, which buys 38 bcm of Russian gas through Power of Siberia 1 annually, half of Gazprom’s exports to the “far abroad.” Despite pricing issues and geopolitical concerns, the Kremlin expects to increase supplies to the PRC by 47 percent, to 56 bcm by 2030 (The Moscow Times, May 20).

Professor at the Financial University under the Government of the Russian Federation and National Energy Security Fund expert Igor Iushkov is also upbeat about the future of the Power of Siberia-2 pipeline, commenting:

There is no need to invest money in the development of deposits—they already exist, and with a sufficient reserve. These are the fields from which gas went to Europe, which will now go to China … We are not faced with the issue of the resource base—we just need to build [Power of Siberia 2] (Komsomol’skaia Pravda, May 19).

Russian experts’ confidence in the future of Power Siberia 2 increased after the Iran conflict, which they thought would make the PRC feel a real threat of an energy shortage. These experts emphasized that the main advantage of Russian gas is the reliability of an overland gas pipeline, free of the possibility of interruption or blockade as with maritime shipments that were blocked by the Strait of Hormuz.

The Power of Siberia 2 would partially solve Gazprom’s fiscal problems caused by losing its lucrative European market in the wake of the sanctions imposed after its full-scale invasion of Ukraine. A project of this magnitude, however, would require significant investment, estimated at over $10 billion, beyond Gazprom’s resources. Even once funding is secured, the Power of Siberia 2 pipeline would take four to five years to build (Carnegie Politika, May 22)

If constructed, the Power of Siberia 2 pipeline would increase Russian gas supplies to the PRC to 100 bcm per year, about two-thirds of what Russia sold to Europe before the Kremlin’s full-scale invasion of Ukraine, throwing Gazprom a desperately needed lifeline. Gazprom’s executives, however, must be worried that Russia’s window of opportunity to construct Power of Siberia 2 could close if the PRC’s renewable energy production becomes effective enough to make new gas sources less important to Beijing. Regardless, the fact remains that in the past four years Gazprom’s lucrative foreign sales opportunities have diminished and are unlikely to ever fully return.