Cameras at the Shanghai Cooperation Organization (SCO) Summit captured Chinese President Xi Jinping, Indian Prime Minister Narendra Modi, and Russian President Vladimir Putin sharing a warm embrace and projecting unity. For Putin, fresh from a high-profile meeting with U.S. President Donald Trump in Alaska, the moment catered to his quest for recognition of Russia’s great power status.
More concretely, Putin’s meetings in Tianjin also signaled two important energy-related advances with India and China.
The United States recently imposed tariffs on Indian goods, citing not only bilateral trade imbalances but New Delhi’s continued purchases of discounted Russian oil as a reason for the high tariff rate. Against this backdrop, Modi’s warm embrace of Putin at the SCO summit sent a message to Washington that India will not bow to U.S. pressure in shaping its energy policy, even in the face of high costs.
In another gain, Russia announced that the state-owned Gazprom had signed a legally binding memorandum of understanding with the China National Petroleum Corporation (CNPC) to construct the Power of Siberia 2 pipeline. Russia has been pushing for the project for years, but China’s apparent reluctance has prevented any breakthrough.
The Chinese side did not comment on the details, but a memorandum is not yet a finalized contract even if it represents an important step toward a final agreement.
The planned pipeline is set to run through Mongolia and become operational in the early 2030s. Unlike the Power of Siberia 1, which draws gas from East Siberian fields, the new pipeline will source gas from Yamal and Western Siberia – the same fields that also provide gas to the pipelines heading west to Europe.
The Power of Siberia 2 pipeline’s planned capacity of 50 bcm, combined with an agreement between China and Russia to increase the capacity of existing routes to 56 bcm, would bring Russia’s total gas exports to China to a bit over 100 bcm annually. For perspective, China’s total natural gas imports in 2023 amounted to approximately 160 bcm. Therefore, Russia is set to become China’s leading source of natural gas.
However, China cannot fully replace the European natural gas markets, which are set to close for Russia. Natural gas plays a far less central role in China’s energy mix than in Germany, Europe’s largest gas consumer. Before Russia’s full-scale invasion of Ukraine, in 2021, EU countries imported around 155 bcm of Russian gas. In 2024, following concentrated efforts to diversify supplies and sanction the Russian energy sector, the volume of Russian gas imports to EU countries had dropped to a third of the pre-war peak. The EU is currently considering a proposal by the European Commission to end all Russian gas imports by the end of 2027.
The new pipeline to China will not fill the gap left by Europe fast enough for Moscow, and alternative export destinations are limited because of Russia’s limited LNG infrastructure. Russia announced earlier in the spring ambitious plans to triple its LNG exports from around 45 bcm in 2023 to over 140 bcm by 2030. Yet sanctions restricting access to technology make this target highly unrealistic.
In the meantime, Russia finds itself negotiating the crucial pricing details for Power of Siberia 2 with China before concrete is poured and the pipeline built. With European markets setting to close, China has a strong negotiation position and the ability to push for favorable prices – reminiscent of the negotiations for the Power of Siberia 1 in 2014. After the annexation of Crimea, Western sanctions limited Russia’s access to capital and technology, making pivot to the east an urgent priority. China struck a hard bargain, negotiating a long-term supply agreement that set the prices to at least a third or even 50 percent lower than the rate that Gazprom charged its European customers at the time. China is again in a position to get a bargain on LNG.
Gazprom’s CEO, Alexei Miller, while jubilant about the new memorandum, acknowledged that the price of supplies to China would be lower than to Europe. Concerns over Gazprom’s ability to recoup the costs of building the pipeline – estimated to be around $25 billion – with China buying LNG at rock-bottom prices sent the company’s stock tumbling by over 3 percent after the announcement.
Moscow showcases the Power of Siberia 2 as a geopolitical triumph, but is ultimately a survival strategy to prevent its most important gas fields from becoming stranded assets. For Beijing, the new pipeline is a pragmatic way to secure cheap, long-term supplies through pipelines, limiting the need for the more expensive and potentially more risky seaborne LNG deliveries.
Ultimately, the outcome of the crucial pricing negotiations will determine whether Power of Siberia 2 symbolizes a balanced energy partnership between China and Russia, or if it further underscores Russia’s deepening dependence on Beijing.