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.