A recently announced agreement between Russia and China marks a major development in the global energy landscape. The proposed Power of Siberia 2 (PoS2) pipeline — designed to deliver up to 50 billion cubic meters (BCM) of natural gas annually from Russia’s Arctic reserves to northern China via Mongolia — signals a long-term realignment of gas trade in Eurasia.
The $14 billion project offers China access to a stable, discounted gas supply while providing Russia with a key diversification route toward the East. Though no final supply contract has been signed, the strategic intent behind the agreement is already influencing global energy markets.
China’s Strategic Calculation
For China, the pipeline is not just an energy deal — it’s a strategic tool. In a period of heightened trade competition and volatile global markets, PoS2 gives Beijing long-term supply flexibility, better pricing leverage, and stronger control over gas procurement terms.
China has previously relied heavily on LNG imports, particularly from the United States and Qatar. However, the new pipeline opens an alternative — one that is less exposed to market swings and geopolitical frictions.
This shift also enables China to strengthen its role as a swing player in the global gas market, able to influence pricing, contract structures, and investment cycles.
China Holds the Stronger Negotiating Position
PoS2’s eventual success depends on four central issues:
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Price
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Take-or-pay terms
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Financing
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Timing
On all fronts, China appears to have the upper hand.
China is unlikely to accept prices based on European or spot Asian benchmarks. Instead, it will likely push for rates closer to the oil-linked pricing model used in the first Power of Siberia pipeline — currently the lowest-priced piped gas in China’s supply mix.
China is also expected to seek relaxed take-or-pay clauses, allowing it to purchase gas based on demand rather than fixed obligations. This would increase China’s flexibility and reduce long-term risks.
On financing, Gazprom has historically covered the full cost of infrastructure projects. But recent statements suggest openness to alternative models. If Chinese loans or equity participation are included, this would ease Gazprom’s capital burden and mark a notable shift in China-Russia energy investment patterns.
Most importantly, the timing of the gas supply agreement remains entirely under China’s control. The current memorandum gives China the right — but not the obligation — to draw on PoS2 in the future, enabling it to act based on economic or strategic considerations.
Global Implications: LNG and Beyond
Though gas from PoS2 is not expected to flow until the 2030s, its announcement is already reshaping LNG investment assumptions. China’s demand has long been central to new LNG capacity planning in the US, Australia, and Qatar.
If China turns increasingly to piped Russian gas, this could dampen demand growth projections for LNG — especially from US producers targeting long-term Chinese contracts.
LNG developers, project financiers, and governments are now recalculating. A shift in China’s supply sources may delay final investment decisions, create oversupply in the late 2020s, and reduce pricing power for exporters.
China’s ability to balance between LNG and pipeline imports — combined with the growing sophistication of its trading houses — will allow it to shape global supply-demand dynamics with increasing authority.
Strategic Energy Realignment
The PoS2 agreement is more than an infrastructure project. It reflects a broader realignment of energy strategy in the Asia-Pacific region. For Russia, it means deeper engagement with Asian buyers and a reorientation of export flows. For China, it represents a diversification win and a step toward greater market influence.
Global energy players — from European utilities to North American LNG exporters — must now account for a world in which China holds greater leverage, both in terms of demand and pricing.
The next decade of gas trade will be shaped not just by supply and demand, but by strategic positioning. And with this deal, China has moved early and decisively.