Russia's Pivot East Is Stalling — Power of Siberia 1 Is Maxing Out and Power of Siberia 2 Is Stuck on Price

Russia's Pivot East Is Stalling — Power of Siberia 1 Is Maxing Out and Power of Siberia 2 Is Stuck on Price With one pipeline to China near capacity and the next one hostage to a Gazprom-CNPC pricing impasse, Beijing cannot absorb the volumes Russia lost in Europe. Power of Siberia 1 is approaching contractual capacity while Power of Siberia 2 remains hostage to a pricing impasse between Gazprom and China's CNPC, and the loss of European volumes has left Russia without an easy outlet for its gas.⁴ The development matters because the entire premise of Russia's eastern pivot — that China would replace the European market it lost — depends on pipelines that are either full or unbuilt.⁴ The scale of what Russia is trying to replace is enormous. Russian gas now accounts for just 18% of European imports, down from 45% in 2021, a collapse that stripped Gazprom of the market that was once its main source of export revenue.¹ Filling that hole with Chinese demand requires new pipeline capacity on a scale that does not yet exist, and the one project meant to provide it is stuck.⁴ The sticking point is price, and the leverage sits with Beijing. Power of Siberia 2 is held up by a Gazprom-CNPC pricing dispute, with China able to press for terms close to Russia's domestic prices precisely because Russia has nowhere else to send the gas.⁴ A seller that has lost its premium market negotiates from weakness, and the "new eastern pricing reality" is that China extracts discounts Russia cannot refuse.⁴ The diplomacy is now aimed squarely at breaking the deadlock. President Putin is visiting China for talks with President Xi, and a Kremlin aide said the proposed Power of Siberia 2 pipeline would be discussed in detail.³ That the project requires presidential-level intervention underscores how far apart the commercial terms remain, and how much Moscow needs the deal relative to Beijing.³ The near-term data already shows China falling short as a replacement. Russia has reduced gas supply as Chinese demand fails to offset the lost European markets, with Russian gas production turning down even as exports to China and domestic consumption rose.² Production declining while the eastern outlet is constrained is the physical signature of a pivot that is not keeping pace with the western loss.² The financial damage frames the urgency. Gazprom incurred losses of almost $7 billion in 2023, its first annual loss since 1999, driven by the rupture with the European Union.¹ The Russian government now expects pipeline gas exports outside the former Soviet Union to decline 10.7% this year to 72 billion cubic metres, reversing earlier hopes of recovery.¹ A stalled Power of Siberia 2 means that decline has no near-term offset.⁴ The asymmetry is the core of the story. Russia needs Power of Siberia 2 to monetize gas that Europe no longer buys; China wants the gas but only at a price that reflects Russia's lack of alternatives, and Beijing can afford to wait.^4,3 Power of Siberia 1 approaching capacity removes the pressure valve, leaving the impasse as the binding constraint on how much Russian gas reaches the east.⁴ The signal to watch is whether the Putin-Xi talks produce a firm Power of Siberia 2 agreement or merely another statement of intent, and on whose price terms.³ If the pricing gap closes, Russia gets a long-term eastern outlet that begins to offset the European loss; if it does not, Russian production keeps drifting lower with no home for the surplus, and the 72-bcm export decline becomes the floor rather than a low point.^2,1