Russia, China Seek New Gas Route as ‘Siberia 2’ Becomes Putin’s Pipe Dream

With negotiations on Russia’s proposed natural gas pipeline to China in limbo, Russian President Vladimir Putin hopes to recover lost European business by routing natural gas to Central Asian states and through them to the energy-hungry Chinese market.

“Using the Kazakh route, where the cost of repair and upgrade will be considerably less than Power of Siberia 2, is a much more attractive option and one which appears to be acceptable to Beijing,” Chris Weafer, CEO of Eurasia-based strategic consultancy Macro-Advisory, told Newsweek.

Russia is eager to expand its foothold in China and other markets after losing most of its gas exports in Europe following the 2022 invasion of Ukraine. Business in Europe is unlikely to resume to pre-war levels, even after a peace settlement, Weafer said, as both sides have learned a lesson from being overly dependent on each other.

The Chinese market’s outsized importance to Russia gives it more bargaining power, and it’s set to get a 28 percent discount on Russian gas from this year until 2028. Earlier this month, Russian state-owned gas giant Gazprom, the operator of the POS, posted losses for the first time in two decades and held a fire sale.

Earlier this month, Putin concluded a state visit to China without having clinched a deal on a second Power of Siberia 2 pipeline. Many analysts, including Weafer, believe Beijing is waiting for a Russian concession to shoulder more, if not all, of the construction costs.

If approved, it would pump an annual 50 billion cubic meters (bcm) of gas into northeast China, in addition to the 38 bcm from the first Power of Siberia (POS), expected to reach full capacity sometime this year.

Russia is therefore turning to Central Asia, both as a destination for its gas and as a cheaper alternative transit point for China-bound gas.

Eventually, Putin hopes to significantly ramp up gas sales to India, Weafer said. But for now, “it has no option but to use pricing to sell more gas to China.

“They share a long common border, and the old Soviet infrastructure is repairable to allow more gas via Kazakhstan. Selling at a price lower than it gets from Europe and Turkiye is an acceptable cost to expand volumes and infrastructure,” he added.

Newsweek reached out to the Russian, Chinese and Kazakh foreign ministries with written requests for comment.

Moscow and Astana have already agreed on the route for one such pipeline, Russian state-owned news agency TASS reported earlier this month.

“We want to make the most of our transit potential. The road map has been signed. We are talking about 35 billion cubic meters of gas (annually), which will be supplied to China,” Kazakhstan’s envoy to Russia told TASS.

Russia has also reached a deal with the Uzbek market on a discounted 12 bcm per year, and analysts expect a separate deal for Kazakhstan.

Kazakhstan and Uzbekistan have their own significant reserves and have exported gas to China through the Central Asia-China gas pipeline.

However, local demand is rising in these countries as their economies grow. Additionally, increased domestic use during winter has also squeezed their supply, forcing them to suspend gas flows to China last year.

“This happened in winter last year and much to the annoyance of Beijing. Hence, China now wants a more reliable supply on these routes with Russian gas,” Weafer said.

China is, however, keen to see additional pipelines laid in its Belt and Road Initiative partners in Central Asia.

“Central Asian pipelines are considered a cornerstone investment in China’s energy and geopolitical space. It’s a supply channel with strategic value that supersedes commercial concerns,” one Chinese official familiar with state-owned China National Petroleum Corp strategy told Reuters. He added that negotiations over prices continue.