Expert Gromov: How Big Politics Saves Gazprom and Power of Siberia 2

The historic day – negotiations in Istanbul between Russian and Ukrainian delegations – will in the long term have an impact on the long-awaited project for the Russian Federation – the construction of the Power of Siberia 2 gas pipeline.

Will it receive a new impetus in the conditions of geopolitical "abracadabra" and will Beijing become much more accommodating when discussing plans with Moscow? Novye Izvestia asked Alexey Gromov, the chief director for energy at the Institute of Energy and Finance, about this.

— Due to US President Trump's trade wars, China increased its import of pipeline gas in February, exceeding its import of LNG. This is the first time such an imbalance has been recorded.

— It is indeed a fact that China has been actively increasing its purchases of pipeline gas in recent months, primarily under the Russian Power of Siberia 1 project. And since February, against the backdrop of worsening relations with the United States, China has completely stopped purchasing American LNG.

I believe that even despite the positive signal that the US and China have reduced the degree of tension in the trade war and reached a temporary agreement on mutual reduction of duties for 90 days, the situation in the sphere of bilateral energy trade will not change fundamentally. Let me remind you that the US will reduce duties on Chinese goods from 145 to 30%, and China on American goods from 125 to 10%.

It is absolutely clear to me that China will not return to full-fledged purchases of American energy resources for its needs, with the exception of those purchases that are already fixed in long-term contracts between China and American producers.

— How can we speak about this with confidence? This is not the first time China has entered into a confrontation with the US administration. And Trump’s contradictory and numerous statements have even made political scientists dizzy.

— Because this trade war has once again shown Beijing how fickle their main trading partner, the United States, can be. And in this context, Russia certainly has an additional window of opportunity to increase its energy supplies to China. This primarily concerns natural gas.

And in this context, it is now more profitable for China to receive Russian gas via pipelines, because pipeline gas is protected from all kinds of sanctions pressure.

While other Russian projects could fall under sanctions from Western countries at any moment.

As, for example, happened with Arctic LNG 2, when we actually cannot fully exploit this project. And we do not have gas carriers to ensure the transportation of LNG from Arctic LNG 2. The gas carriers that we have chartered and contracted, which are being built in the interests of this project in the same Korea, are not transferred to Russia, because the Koreans are afraid of the risk of falling under secondary sanctions in the United States. In this regard, pipeline deliveries, I repeat, are more reliable. Thus, any destructive role of sanctions restrictions of third countries is excluded here.

—So China has a choice to swap one awl for another: to weaken its dependence on America and strengthen its dependence on Russia?

— Beijing rightly believes that increasing supplies of Russian pipeline gas on a long-term basis will connect China with the Russian Federation for at least several decades. And this is probably the main stumbling block between the parties now, since China is betting on an accelerated transition to low-carbon development of its economy after 2030.

And this transition does not envision a significant increase in natural gas consumption within China. In other words, new pipeline gas supplies from Russia after 2030 will effectively displace other gas suppliers from the Chinese market, not just potential LNG supplies from the United States. Do the Chinese want this? I don’t have a clear answer to that question yet.

Now a few words about the Power of Siberia 2 project. For the last two years, the situation around the negotiations on the implementation of this project has been essentially frozen at the initiative of the Chinese side. Moreover, even Mongolia, through which the route of the new gas pipeline was supposed to pass, last year doubted the prospects for its implementation and excluded this project from the medium-term plans for the development of its economy.

And we, in turn, began to work out alternative options for additional supplies of Russian gas to China via Kazakhstan. But after Xi Jinping's visit to Moscow in May 2025, there was cautious hope that the negotiations on Power of Siberia 2 would finally move forward.

As is known, the Russian side has already prepared a feasibility study for the Power of Siberia 2, that is, the gas pipeline project itself is ready. Only the commercial component is missing, namely, there is no contract for the supply of gas via SS-2 from the Russian Federation to China, since the parties have not agreed on the price of gas, as well as on the volumes and conditions of its supply.

And the fact that in May 2025, during a meeting between the Russian and Chinese leaders in Moscow, the parties agreed to give additional impetus to negotiations in this area, indicates that China has shown political interest in implementing this project.

However, this does not mean that the negotiations are guaranteed to end with a commercial contract. This is a complicated story, because the trade positions of China and Russia on this issue are quite far apart.

— Not only. The Russian Federation expects to supply gas via SS-2 in the amount of at least 50 billion cubic meters. These are very significant volumes.

Just for comparison, let us note that we are currently supplying 38 billion cubic meters to China via the Power of Siberia 1 pipeline; starting in 2028, we will add another ten billion cubic meters to these volumes via the Far Eastern route from Sakhalin, which has already been agreed upon with China.

Thus, the total volume of Russian pipeline gas supplies to China by 2030 will already reach 48 billion cubic meters. And here, within the framework of just one new project, "Power of Siberia - 2", we are proposing to China to actually double these supplies. And this is a serious challenge for the Chinese economy.

China is not yet ready to say that it will be able to take from the Russian Federation all the volumes of gas that we offer under this contract. This is a very sensitive point. And here we must either agree to reduce the declared capacity of the pipeline system, which is unlikely, or agree to more flexible terms of delivery "take or pay".

Usually, the "take or pay" condition guarantees that the buyer will pay at least 80% of the contracted gas per year, even in the event of its possible actual non-extraction. China, however, insists on lowering this bar from 80 to 50%. Is Gazprom ready to make such concessions? I do not know about this.

The second question is the pricing formula for Russian gas.

As far as I understand, the Russian Federation insists that the pricing conditions for gas supplies via the Power of Siberia 2 gas pipeline generally correspond to the pricing principles that were agreed upon by the parties during the implementation of the first project, Power of Siberia 1.

However, the Chinese side insists on significant price concessions from Russia, expecting to receive Russian gas via Power of Siberia 2 at a significantly lower price than is currently the case under the contract for gas supply via Power of Siberia 1. And here, there is probably significantly less scope for compromise.

The reason is obvious - this project must be economically profitable for us. And given the high costs of implementing this project, and also in the context of Gazprom's difficult financial situation , I think that we will not be able to significantly reduce the price of gas. Otherwise, investments in such an expensive project may simply not pay off.

— What kind of discount is the Chinese side currently insisting on for Power of Siberia 2?

— Only the participants in the negotiations have precise information about this, but, according to indirect information, China is demanding a more than twofold reduction in the price of Russian gas supplies relative to the price of supplies under SS-1.

Let me remind you that in 2025, according to the Ministry of Economic Development of the Russian Federation, it was $265 per thousand cubic meters, and in the next two years it will decrease to $235 per thousand cubic meters due to the specifics of the price formula included in the contract (tied to oil prices on Asian markets with a time lag of nine months).

In other words, China is ready to take additional volumes of gas from Russia at approximately $120 per thousand cubic meters, which is already a price level close to the expected price level on the Russian domestic market after 2030, taking into account plans for their gradual increase over the next few years.

And this, of course, is unacceptable for us, because under such price conditions, export deliveries of additional volumes of gas to China, taking into account the need to build expensive pipeline infrastructure, simply do not make any economic sense.

— The Chinese government knows how to wait, bargain and use soft power to get its way. Besides, Russia is far from the only supplier of gas to the Celestial Empire.

— I think that we will have rather complicated and difficult negotiations with the Chinese side in the next few months. But I suppose that in case of successful completion of these commercial negotiations, we may hear about the signing of a contract for gas supply via Power of Siberia 2 already this autumn. Vladimir Putin’s return visit to China is planned for September. And this visit may give a start to the practical implementation of this long-suffering project.