Russia–China Gas Deal: Strategic Move or Economic Mirage?

Source Credit : Portfolio Prints

Backdrop & Announcement

On September 2, 2025, Russia and China signed a legally binding memorandum to advance construction of the Power of Siberia 2 gas pipeline, a long-delayed project aimed at deepening their energy partnership. The agreement was announced during Russian President Vladimir Putin’s visit to China, symbolizing a significant diplomatic achievement amid heightened Western geopolitical pressure.

The project entails delivering approximately 50 billion cubic meters (bcm) of gas per year through Mongolia to China, complementing an immediate increase of 6 bcm/year—from 38 to 44 bcm—via the existing Power of Siberia pipeline.

Strategic Implications

This deal marks a major geopolitical pivot. For Russia, it serves as a vital alternative to the collapsing European gas market, reinforcing strategic ties with China, which is the world’s largest energy consumer. For China, the agreement offers a more secure, potentially cheaper supply — undercutting Europe's pricing and increasing its leverage over global energy dynamics.

Additionally, the enlargement of the Russia–China energy axis coincides with broader forces reshaping the world order — from BRICS-aligned financial systems to waning Western hegemony.

Economic Realities & Caveats

Despite the political fanfare, key commercial specifics remain undecided or opaque:

• Pricing: There’s been no agreement on the gas price. Gazprom has indicated that negotiation on price will be handled separately. Putin emphasized the deal will offer gas cheaper than European supply, but actual figures are yet to be disclosed.


• Financial Viability: The project’s staggering cost—potentially between $13.6 to $20 billion, including infrastructure, compressors, and processing facilities—raises questions about economic feasibility.


• Execution Risks: Experts remain wary. Axios points out uncertainties around pricing, slumping Chinese gas demand, and structural financing, suggesting the announced deal may be more symbolic than substantive.

Wider Impact & Market Dynamics

Should Power of Siberia 2 materialize, its sheer scale could disrupt the global liquefied natural gas (LNG) market, especially impacting U.S. exporters. Analysts caution that large volumes of cheaper pipeline gas might undercut LNG demand in Asia, reshaping energy market forecasts.

Strategic Move or Mirage?

Strategic Move

• Diversification for Russia – Provides a critical energy route following curtailed access to European markets.


• Energy Security for China – Reduces reliance on volatile LNG imports and reinforces strategic autonomy.


• Geopolitical Signaling – Underscores a deepening anti-West alliance, especially in light of Western sanctions.

Potential Mirage

• Unresolved Pricing & Financing – Without clarity on cost-sharing and sustainable economics, the project risks stalling or underperforming.


• Market Dynamics – Slowing growth in Chinese gas demand and competition from renewables could weaken the project's long-term utility.


• Executional Challenges – Massive infrastructure projects in remote terrain, relying on Mongolian transit, expose the venture to delays and geopolitical friction.

Conclusion

The Russia–China gas deal via Power of Siberia 2 undeniably serves as a calculated strategic maneuver, reinforcing Beijing’s and Moscow’s mutual interests amidst shifting global alliances. Yet, without concrete pricing, financing, and timeline commitments, the project also carries the hallmarks of a diplomatic mirage, rich in symbolism but sparse in certainty.

Moving forward, key elements to monitor include: negotiation outcomes on gas pricing, detailed agreements on project funding and construction timelines, and future trajectories of Chinese gas demand. Only then will the line between strategic triumph and economic mirage truly clarify.