China-Russia Pipeline Diplomacy Threatens Trump's Energy Grip - Energy News, Top Headlines, Commentaries, Features & Events

Chinese President Xi Jinping shakes hands with Russian President Vladimir Putin at the Great Hall of the People, in Beijing

Summary

Russia to increase natural gas exports to China
China, Russia sign initial agreement to develop new pipeline, but price undecided
China’s growing dependence on Russian pipeline gas will reduce need for LNG imports

(Reuters) – The high-stakes energy diplomacy in Beijing this week signals China’s willingness to defy U.S. President Donald Trump’s efforts to isolate Russia and assert U.S. energy dominance.

Chinese President Xi Jinping, sitting alongside Russian President Vladimir Putin, used a military parade this week marking 80 years since Japan’s defeat in World War Two to project Beijing’s military and diplomatic clout amid heightened trade tensions with Washington.

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China backed the pageantry with action on Tuesday, when Russia’s gas giant Gazprom announced the sides had signed a legally binding memorandum with Moscow for the construction of Power of Siberia 2, a 2,600-km (1,615 mile) gas pipeline that will run between the two countries. The project has struggled to take off after more than a decade of fruitless talks.

China will also boost the already large gas volumes it imports through the existing ‘Power of Siberia’ pipeline. Gazprom CEO Alexei Miller said on Tuesday that the two countries had agreed to increase supplies via the pipeline to 44 billion cubic metres a year from 38 bcm.

Additionally, both sides agreed to raise the volume of Russian gas deliveries to China via a pipeline from Sakhalin Island in Russia’s Far East by 20% to 12 bcm annually.

Taken together, this is yet another indication of the growing ties between Beijing and Moscow, but more importantly, it is a signal that China is not planning to back down in the face of U.S. pressure.

DOMINANCE

Of course, several major hurdles remain for the new Siberian project.

First and foremost, the sides have yet to agree on the price of the gas that will be transported through the pipeline. The Gazprom CEO indicated that the price would be lower than what European buyers paid in the past.

It also remains unclear whether China will require the additional volume. Chinese companies in recent years have signed many long-term liquefied natural gas supply deals, including with U.S. producers, amounting to around 50 bcm per year of additional supplies through 2030, according to the Institute for Energy Economics and Financial Analysis.

On top of that, China ramped up its domestic gas production by 28% between 2020 and 2024 to 246.4 bcm, according to IEEFA.

The bigger problem could be strategic.

Completing the new project would cement Russia’s position as the biggest natural gas supplier to China – and that could be a concern for Beijing.

Russia supplied around 22% of China’s gas imports in 2024, or about 38 bcm, when including pipeline gas and deliveries of LNG, according to data from the Energy Institute’s Statistical Review of World Energy.

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The new volumes from the existing pipeline would raise Russia’s share in China’s imports to over a quarter next year, assuming an increase in the country’s gas demand.

Adding another 50 bcm capacity from the new pipeline, which likely would not come on stream before 2030, would therefore double Russia’s share of China’s gas imports.

And that would seemingly undermine Beijing’s decades-long effort to reduce its reliance on energy imports and diversify its supply sources.

China's natural gas imports in 2024 — China’s natural gas imports in 2024

POLITICAL DEFIANCE

But in today’s new global environment, what might matter more is that Putin and Xi appear politically invested in making the project work.

For Russia, the agreement offers a long-term market for its vast natural gas reserves – something that has become particularly important since Europe, Russia’s biggest gas market for decades, began to wean itself off Russian gas following Moscow’s invasion of Ukraine in 2022.

For China, this appears to be another shot across the bow in the economic stand-off with Washington.

On a practical level, importing larger volumes of gas from Russia would reduce Beijing’s need to increase U.S. LNG imports, one of the major promises many other countries have made in trade talks with the Trump administration.

And then there is the desire to signal defiance – a negotiating tactic in itself.

It is notable that last week China imported its first LNG cargo from Russia’s Arctic LNG 2 plant, despite heavy U.S. sanctions, undermining Trump’s attempts to isolate Moscow and pressure Putin over Ukraine. Other cargoes from the plant could be heading to China.

The Trump administration has yet to respond to the cargo’s arrival in Beihai, but the timing just days before Putin’s visit is unlikely to be a coincidence.

This new age of energy diplomacy is rapidly evolving, but it currently appears to be setting the stage for sharper tensions between the world’s two largest economies.

Ron Bousso

Thomson Reuters