Russia and China have agreed on a memorandum on the construction of the Power of Siberia 2 gas pipeline. The negotiations have taken almost a decade. If the project goes through, it would be the largest energy agreement between the two countries in years.
The pipeline’s design capacity is approximately 50 billion cubic metres annually. At that, it could bring Gazprom approximately $10–11 billion more per year at the prevailing China contract price of just over $200 per thousand cubic metres. For Russia, it is an additional income stream for exports, and for Siberia, it is a means to bring gas to urban centers and develop energy and industry.
Power of Siberia 2 increases the energy relationship between China and Russia, and Beijing is a key customer of Russian gas. Even when the new pipeline is in full operation, however, total shipments to China will be substituting only about half of the historic export volumes to Europe, which earned much more money thanks to higher prices.
Price policy is another point of pressure against Russia. In 2023, Russia exported gas to Beijing cheaper than any other producer: $248 per thousand cubic meters versus $283 from Uzbekistan and $321 from Turkmenistan.
The most crucial question, however, still goes unanswered: how will Gazprom raise the funds for so massive construction project? Previously, the project was valued at $11–14 billion, and now the company faces sanctions and falling incomes from the European market. Another issue is the technical one: all the majority of the decisions to construct previous gas pipelines were based on Western technologies, which are currently not accessible. China is expected to contribute some of the financing as well as equipment supplies, further increasing its influence in the project.
