Power of Siberia 2 Stalls Again, and Europe Is Watching the Fallout

Power of Siberia 2 Is Becoming a European Security Story The Chain Stalled Russia-China gas pricing → Russian export revenue constrained → Ukraine energy infrastructure attacks intensify → European supply assumptions tested Link 1: Beijing Talks Produce Praise, Not Pipeline After two days of talks in Beijing on May 20, Vladimir Putin and Xi Jinping issued a joint statement condemning Washington's Golden Dome missile defence plans and agreeing in principle on a reciprocal tariff framework covering $30 billion or more on each side. What the communiqué did not contain was a finalised agreement on Power of Siberia 2.^3,7 The pipeline has been under active negotiation since at least Putin's September 2025 visit, when Gazprom announced both sides had agreed to move forward. The project would run 2,600 kilometres from Russia's Yamal fields through Mongolia to northern China, delivering 50 billion cubic metres of gas annually.^8,4 The sticking point is commercial. Key pricing terms remain unresolved, and analysts expect negotiations could take years. Russia is seeking prices closer to European netback; China, already importing discounted Siberian gas through the existing eastern route, sees no urgency to concede on that point. The summit ended without resolution.⁶ Link 2: Oil Fills the Gap — At a Discount With western gas revenues gone and the eastern pipeline delayed, Russia is compensating through oil volume. Russian Deputy Prime Minister Alexander Novak confirmed that oil exports to China were up 10% in the first four months of 2026, and said Beijing had expressed interest in long-term supply agreements with increasing volumes.⁵ The structural problem is that oil can be rerouted and priced flexibly; gas requires infrastructure, and infrastructure requires a signed commercial framework. Every month Power of Siberia 2 remains unsigned is a month Russia earns less than it could on its Yamal reserves. That fiscal pressure has consequences that do not stay contained to the bilateral negotiating table.⁵ Link 3: Pressure Finds an Outlet in Ukraine While Putin was in Beijing, Russian forces continued what Naftogaz described as "massive attacks" on Ukraine's oil and gas production facilities, with the company reporting "extensive damage" to its assets over the preceding three days.² Earlier in May, drone and missile strikes had already hit gas facilities in the Poltava and Kharkiv regions, with Naftogaz describing the damage as "significant."⁹ The targeting of Ukrainian energy infrastructure sits at the intersection of military strategy and economic leverage. Hungary, the EU member state most structurally exposed to Russian gas dependence, illustrates how durable that leverage remains: analysts say a full shift away from Russian energy could take as long as a decade, with confidential long-term contracts and limited alternative infrastructure constraining any new government's options regardless of political intent.^1,10 Weakest Link The chain depends on Russia remaining under meaningful fiscal pressure from the stalled gas deal. If Beijing and Moscow reach a provisional pricing framework through quiet bilateral working groups — without a headline announcement — the leverage calculus shifts before markets register it. Chinese demand growth also cuts both ways: the cross-sector link runs from Chinese demand through JKM prices to Brent, which partially offsets Russian revenue losses through higher reference prices. Beijing may be in no hurry precisely because delay keeps Gazprom at the table without requiring China to concede on price. What to Watch For Link 1, track whether Gazprom and CNPC announce any working-level pricing agreement — six more months of silence would confirm the analyst view that this is a multi-year negotiation with no near-term resolution.⁶ For Link 2, watch the Urals-Brent spread and Russian crude export volumes to Asia; a widening discount signals continued pressure to move barrels regardless of margin.⁵ For Link 3, monitor Naftogaz's weekly damage assessments alongside EU gas storage injection rates heading into summer — any slippage in the injections-to-target trajectory will sharpen the stakes of the Russian energy leverage debate well before the 2026-27 heating season arrives.²