CNBC
Russian President Vladimir Putin arrived in Beijing on Wednesday for discussions with Chinese leader Xi Jinping, with a focus on the Power of Siberia 2 natural gas pipeline, as disruptions in energy supply resulting from the Iran war remain a critical concern.
Kremlin foreign policy aide Yuri Ushakov indicated on Tuesday that the leaders would engage in extensive discussions regarding the project.
The proposed 2,600-kilometer pipeline aims to transport 50 billion cubic meters of gas each year from Russia's Yamal fields to China through Mongolia. While Moscow and Beijing signed a legally binding memorandum to progress construction in September 2025, critical aspects such as pricing, financing arrangements, and delivery timelines are still unresolved.
Reports suggest that China is seeking pricing terms for the new pipeline equivalent to Russia's domestic rate of approximately $120-130 per 1,000 cubic meters, whereas Russia is advocating for terms closer to those established for Power of Siberia 1, which analysts estimate would significantly exceed this figure.
Energy Context and Market Dynamics
China has emerged as a key purchaser of Russian energy, with official customs data indicating a 35% year-over-year increase in imports of Russian oil during the first quarter.
The proposed pipeline would augment the existing Power of Siberia 1 system, which currently delivers around 38 billion cubic meters of gas to China annually, and both nations have agreed to further enhance this capacity.
The U.S.-Iran conflict that commenced in late February has led to the effective closure of the Strait of Hormuz, disrupting half of China's oil imports and nearly one-third of its liquefied natural gas (LNG) supply.
Why the Energy Shock Matters
This energy disruption provides new impetus for Beijing to contemplate an overland pipeline that could bypass critical maritime chokepoints. However, analysts express skepticism regarding its potential impact on Beijing's negotiating strategy.
China's onshore crude inventory stands at approximately 1.23 billion barrels, representing a supply sufficient for nearly 92 days of refining activities, as reported by Kpler senior oil analyst Muyu Xu. Additionally, domestic gas production increased by 2.7% in the first four months of the year, supplemented by supply from Central Asian pipelines outside the Russian system.
Since Russia's invasion of Ukraine in 2022, its gas exports to Europe have significantly declined, with state-owned energy company Gazprom reportedly experiencing a 44% drop in shipments last year, reaching the lowest levels observed in decades.
Strategic Considerations
Given its scale, Power of Siberia 2 presents a strategic dilemma for Moscow, potentially placing it in a position of dependency on a single customer. Conversely, Beijing would face a trade-off between vulnerability from maritime routes through Hormuz and dependence on Russian-controlled energy, according to Michael Feller, chief strategist at Geopolitical Strategy.
"A deal would not only reflect trust but also signify a move towards a co-dependency deemed safer than alternatives," Feller stated. "For the international community, this development would complicate the Sino-Russian relationship, making it less amenable to disassembly."
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