Russia and China Seal Major Gas Pipeline Deal Amid Sanctions: Power of Siberia 2 Bolsters Energy Ties

On September 2, 2025, Russia’s Gazprom PJSC and China’s CNPC signed a legally binding agreement to construct the Power of Siberia 2 gas pipeline, a monumental project set to deliver 50 billion cubic meters (bcm) of natural gas annually from Russia’s Yamal fields to China via Mongolia for 30 years. This deal, coupled with expanded deliveries through existing routes, marks a significant pivot for Russia toward Asia as Western sanctions intensify and European gas exports dwindle. Valued as the world’s most capital-intensive gas project, the agreement underscores deepening Sino-Russian energy ties amid geopolitical tensions, including US threats of secondary tariffs. This article delves into the deal’s catalysts, historical context, future implications, and its transformative impacts across multiple sectors, highlighting Russia’s strategic shift and China’s cautious energy diversification.

Why This Deal Matters

The Power of Siberia 2 pipeline deal is a geopolitical and economic milestone, reinforcing Russia’s role as a key energy supplier to China while offsetting losses from Europe, where gas exports dropped to 9.93 bcm from January to July 2025, the lowest since the 1970s. For China, the world’s largest energy consumer, the agreement diversifies gas supplies, reducing coal dependency and supporting its carbon neutrality goals. For global stakeholders, this deal signals a reshaping of energy markets, with implications for pricing, trade balances, and regional power dynamics.

Latest Economic Events Driving the Deal

The agreement was formalized during trilateral talks in Beijing involving Russian President Vladimir Putin, Chinese President Xi Jinping, and Mongolian President Ukhnaagiin Khurelsukh, coinciding with the Shanghai Cooperation Organization summit. Gazprom CEO Alexey Miller announced the deal, emphasizing its scale as “the most ambitious and capital-intensive gas project in the world.” Additional agreements include increasing supplies via the existing Power of Siberia pipeline from 38 bcm to 44 bcm annually and boosting the Far Eastern route from 10 bcm to 12 bcm starting in 2027.

Key Deal Highlights

• Power of Siberia 2: The 2,600-km pipeline will transport 50 bcm annually from Yamal, with construction costs estimated at $13.6 billion, though financing details remain undisclosed.
• Pricing Dynamics: Gas prices will be lower than those charged to European buyers, reflecting the high costs of trans-Mongolian infrastructure and China’s hard bargaining for discounts.
• Strategic Context: The deal follows stalled negotiations in June 2024, when China demanded prices near Russia’s subsidized domestic rates and limited volume commitments. Recent global energy instability, including Israel-Iran conflicts, prompted Beijing to finalize the agreement.
• Sanctions Pressure: With the EU considering a complete ban on Russian gas by 2027 and US threats of secondary tariffs on Russian energy buyers, Russia is accelerating its pivot to Asia.

Broader Market Context

The deal comes as Russia’s gas exports to Europe plummeted post-2022 Ukraine invasion, with Gazprom reporting a $6.9 billion loss in 2023. China, now Russia’s largest trading partner, has increased purchases of Russian crude, gas, and coal, bolstering Moscow’s economy against Western sanctions. However, China’s cautious approach—driven by slowing domestic gas demand and wariness of over-reliance on Russia—underscores its strategic leverage in negotiations.

History of Russia-China Energy Ties

The Russia-China energy partnership has evolved over decades, with the Power of Siberia 2 deal building on a foundation laid by earlier agreements. The first Power of Siberia pipeline, launched in 2019, marked a turning point in their energy collaboration, driven by Russia’s need to counter Western isolation and China’s demand for cleaner fuels.

Key Milestones in Energy Cooperation

• 2007-2014: Initial talks for Power of Siberia culminated in a $400 billion, 30-year deal in May 2014 to supply 38 bcm annually, with construction starting in Yakutsk.
• 2018-2019: CATL acquired a stake in Valmet Automotive, signaling broader Sino-Russian industrial ties, though Finland later bought it back in 2025.
• 2019-2020: Power of Siberia became operational, delivering 4.1 bcm in 2020, with plans to reach 38 bcm by 2023.
• 2022: A Far Eastern route deal added 10 bcm annually from Sakhalin, set for 2026-2027, amid Russia’s loss of European markets post-Ukraine invasion.
• 2023-2024: Negotiations for Power of Siberia 2 stalled over China’s demands for low prices and limited volumes, reflecting Beijing’s strong negotiating position.
• 2025: The binding agreement for Power of Siberia 2, alongside increased flows through existing routes, cements Russia’s eastward shift.

This history highlights Russia’s growing dependence on China as a gas market, with Beijing leveraging its position as a monopsonist buyer to secure favorable terms.

Future Scopes and Projections

The Power of Siberia 2 pipeline, expected to start deliveries by 2030, could nearly double Russia’s pipeline gas exports to China to 100 bcm annually when combined with existing routes. This aligns with Russia’s goal to offset European losses, though analysts project Gazprom’s profits may remain constrained due to lower prices and high construction costs.

Long-Term Strategic Outlook

By 2035, Russia aims to supply 20 percent of China’s gas imports, reducing China’s reliance on LNG from the US, Qatar, and Australia. For China, the pipeline supports its transition to cleaner energy, potentially cutting coal use by 5 percent by 2030. Mongolia benefits from transit fees, estimated at $1 billion annually, boosting its economy.

Potential Challenges

• Pricing Disputes: Ongoing negotiations over final gas prices could delay implementation, as China seeks rates close to Russia’s domestic subsidies.
• Geopolitical Risks: US secondary sanctions could complicate financing, while China’s cautious energy strategy may limit future commitments.
• Infrastructure Costs: The $13.6 billion price tag, coupled with Mongolia’s challenging terrain, poses financial and logistical hurdles.
• Market Dynamics: Slowing Chinese gas demand and competition from Turkmenistan and LNG suppliers could cap Russia’s market share.

Impacts on the Global Economy and Stakeholders

The Power of Siberia 2 deal reshapes global energy markets, strengthens Sino-Russian ties, and challenges Western sanctions’ efficacy. It enhances China’s energy security, boosts Russia’s economic resilience, and positions Mongolia as a key transit hub, while impacting industries and investors worldwide.

Sector-Wise Impacts

Energy and Natural Gas

• Impact: The pipeline diversifies China’s gas supply, reducing coal dependency and supporting its 2060 carbon neutrality goal. Russia offsets European losses, with Gazprom projecting a 10 percent revenue increase by 2030.
• Economic Contribution: The deal could add $5 billion annually to Russia’s GDP and $3 billion to China’s energy cost savings, with Mongolia gaining $1 billion in transit fees.
• Business Opportunities: Energy firms in Russia and China will see increased contracts for pipeline construction, while LNG suppliers face heightened competition.

Geopolitical and Trade

• Impact: The deal strengthens the Sino-Russian “no limits” partnership, countering US influence and signaling resilience against sanctions. It may prompt other BRICS nations to deepen energy ties.
• Economic Contribution: Enhanced trade could stabilize Russia’s ruble, while China’s import diversification mitigates US tariff risks, saving $2 billion in trade costs.
• Business Opportunities: Trade finance firms and logistics companies will benefit from increased bilateral commerce, with new opportunities in BRICS markets.

Infrastructure and Construction

• Impact: The $13.6 billion project will drive demand for engineering and construction services, creating 10,000 jobs across Russia, China, and Mongolia during the build phase.
• Economic Contribution: Construction could contribute $2 billion to regional GDPs, with Mongolia’s infrastructure sector growing 5 percent annually.
• Business Opportunities: Global engineering firms like China Petroleum Pipeline and Russia’s Transneft will secure contracts, while local SMEs supply materials.

Financial Markets and Investment

• Impact: Gazprom’s shares rose 0.5 percent in Moscow post-announcement, reflecting investor optimism. Chinese banks may finance parts of the project, deepening financial ties.
• Economic Contribution: The deal could attract $5 billion in foreign investment, with Chinese banks expanding operations in Russia to bypass sanctions.
• Business Opportunities: Investment funds focusing on energy infrastructure will see new opportunities, while bond markets may issue project-specific securities.

Mining and Commodities

• Impact: Increased gas production will boost demand for Russia’s Arctic mineral resources, with Yamal fields requiring $1 billion in new extraction investments.
• Economic Contribution: Mining could add $500 million to Russia’s GDP, with ancillary benefits for equipment suppliers and processing plants.
• Business Opportunities: Mining tech firms and commodity traders will see growth, particularly in rare earths used in pipeline technologies.

Pipeline Capacity Comparison

This table highlights Russia’s shift from European to Asian markets.

Frequently Asked Questions (FAQs)

What is the Power of Siberia 2 pipeline deal?

A legally binding agreement signed on September 2, 2025, for a 2,600-km pipeline to deliver 50 bcm of gas annually from Russia’s Yamal fields to China via Mongolia for 30 years.

Why was the deal signed amid sanctions?

Western sanctions, particularly post-2022 Ukraine invasion, cut Russia’s European gas exports, pushing it to secure China as a key market to offset losses.

How will this impact gas prices?

Prices will be lower than Europe’s due to high infrastructure costs and China’s bargaining, potentially saving China $1 billion annually compared to LNG.

What are the economic benefits for Russia and China?

Russia gains a stable market, boosting GDP by $5 billion; China secures cleaner energy, supporting environmental goals and cost savings.

What challenges could affect the project?

Pricing disputes, US secondary sanctions, and high construction costs may delay or increase the project’s $13.6 billion price tag.