Gazprom Moving Forward with Power of Siberia 2 Gas Pipeline to China, Signaling Continued Diversification of Gas Export Routes

On May 18, Gazprom CEO Alexei Miller announced that design and survey work had begun on the Power of Siberia 2 pipeline project, which is intended to provide an additional 50 billion cubic meters (bcm) of natural gas per year to the Chinese market. President Putin gave his support to the project in March of this year.  The announcement comes just a few months after the $55 billion Power of Siberia 1 pipeline, rated (eventually) to transport 38 bcm of gas to China, was formally opened in December 2019.

The confirmation of plans to more than double Russia’s land-based gas export capacity to China suggests that Russia is intent on diversifying, to a greater degree, its export markets beyond Europe, where attempts have grown bolder to lessen the strategic leverage that accompanies Russian supplies.  The latest manifestation of this was evident on May 15, when Germany’s energy regulator made the somewhat unexpected announcement that it had declined to exempt the Nord Stream 2 pipeline project from European Union rules that require separate operators for the production, transport, and distribution of gas into member states.

It is in this context that Gazprom, already burdened by large levels of investment spending in recent years, is choosing to embark on another large-scale energy project that, Moscow hopes, will strengthen the hand of Russian negotiators in their interactions with European and Asian customers (notably China).

Gazprom’s decision also reveals an awareness that it will likely be some time before reliable large-volume transportation of liquefied natural gas (LNG) can be delivered to market via the Northern Sea Route, even as premature melting is currently allowing an LNG carrier (with icebreaker escort) to make the earliest-ever passage from Yamal LNG to China.  At present, Yamal LNG operator Novatek has 15 LNG carriers in operation, with plans to acquire up to 42 additional vessels in the future.

Ultimately, doubling down on pipeline construction to China serves multiple Russian strategic objectives, including improvements the project might bring to domestic energy distribution, alongside an improved ability to compete with Central Asian states for the Chinese market and, as noted, improving its leverage in its negotiations with Europe, its dominant export market.