Russia and China on Wednesday signed a landmark agreement to build the Power of Siberia 2 pipeline, a strategic infrastructure project that re-routes Russia’s energy flows eastward and deepens Beijing’s leverage over Moscow. The deal secures a new major customer for Russian gas after its exports to Europe collapsed.
"For Russia, it is a strategic lifeline after losing most of its European gas market," said Alexander Korolev, a political scientist at UNSW Sydney in Australia. "For China, the pipeline is about energy security and leverage, and less about dependence. It diversifies supply away from maritime chokepoints."
The legally binding memorandum greenlights the 2,600-kilometer pipeline, which will carry 50 billion cubic meters of natural gas annually from fields in the Yamal peninsula that previously served Europe. The new route will traverse Mongolia to reach China, complementing the existing Power of Siberia 1 pipeline, which has a capacity of 38 bcm. The agreement follows a 44% plunge in Gazprom's gas shipments in the prior year, pushing exports to their lowest level in decades.
The deal solidifies a new energy co-dependency that strengthens the Sino-Russian relationship while creating new pressure points. For Beijing, the overland pipeline is a crucial step toward securing its energy supply, bypassing maritime routes like the Strait of Hormuz, which has seen significant disruption from the Iran war. For Moscow, it provides a much-needed long-term revenue stream, though analysts believe China's negotiating position allowed it to secure highly favorable, albeit undisclosed, pricing terms.
A Deal Driven by Mutual Necessity
China’s hesitance on the long-stalled project appeared to wane as energy volatility and threats to shipping lanes highlighted its vulnerabilities. While China holds a significant 92-day supply in its onshore crude inventory and has been boosting domestic output, the Power of Siberia 2 provides long-term supply security from a single, massive source. The agreement, signed during President Vladimir Putin's visit to Beijing, marks a culmination of years of Russian efforts to bring the project to fruition.
The deal signals a deeper economic alignment, with Russia becoming increasingly reliant on China as a buyer for its most crucial export and a source for sanctioned technology. While the full financial terms were not made public, reports suggest Beijing was pushing for prices matching Russia's domestic rates, significantly lower than what European customers paid. "A deal would signal not just trust, but a decision that co-dependency is safer than the alternative," said Michael Feller, chief strategist at Geopolitical Strategy. "For the rest of the world, it would make the Sino-Russian relationship harder to unpick."
This article is for informational purposes only and does not constitute investment advice.
