Russia's Gas Pivot to China Falls Short as Production and LNG Output Drop
Russia's natural gas production fell 3.2% in the first half of 2025 to 334.8 billion cubic meters, as higher exports to China via the Power of Siberia pipeline and increased domestic consumption failed to offset the sustained collapse in pipeline flows to Europe, Bloomberg reported. The data, confirmed by Russian federal statistics, shows that Gazprom's pivot to Asia is running below the scale needed to replace what it lost on its western flank.2
China took more Russian gas this year than in previous years, with Power of Siberia volumes rising by more than 20% and occasionally surpassing contractual minimums. But the pipeline approaches its ceiling. Exports are projected to reach approximately 38 billion cubic meters annually at maximum capacity — a fraction of what Nord Stream 1 and 2 once carried to Germany before their destruction on September 26, 2022.2,1,4
ICE Endex TTF front-month gas closed at €40.84 as of Sunday (2026-06-28). European buyers are operating comfortably without Russian supply at that level, drawing instead on Norwegian pipeline gas and LNG from Qatar and the United States. Gazprom's commercial position in Europe is gone; the market pricing confirms it.
In May (2026), Russia and China signed a legally binding framework to build the Power of Siberia 2 pipeline through Mongolia, a project designed to move up to 50 billion cubic meters annually once completed. Gazprom's chief executive Alexei Miller described it in Russian state media as a milestone. Analysts reviewing the announcement noted that critical commercial terms — pricing formulas, take-or-pay obligations, construction financing — were absent from the published agreement.6,5
The missing detail is significant. China's leverage in these negotiations comes from having alternatives Russia does not. Beijing can source LNG from Australia, Qatar and the United States; Moscow cannot redirect its pipeline capacity to other buyers. Russia's negotiating position weakens further with each year that European demand stays away. Vita Spivak, an energy analyst at Control Risks, observed before the agreement that China's gas appetite will grow as coal substitution advances — but that demand comes on Beijing's schedule, not Gazprom's.3,5
Russia's LNG position has also deteriorated. Production fell 5.1% in the first half of 2025 to approximately 16.5 million tons, according to Russian federal statistics. Western equipment sanctions have disrupted maintenance and expansion work at Arctic projects. The Asian LNG benchmark JKM stood at $15.52 per MMBtu as of Sunday (2026-06-28), but Russia's physical access to Pacific spot cargoes remains constrained by the same logistical and technical bottlenecks that limit its pipeline strategy.1
Urals crude trading at $60.11 illustrates the pattern. Russia sells its oil at a discount to buyers who have no alternative pipeline connection, and it will likely sell Power of Siberia gas on terms that reflect Beijing's negotiating strength rather than Moscow's commercial preferences. Gazprom's European long-term contracts were priced against ICE Endex TTF or on oil-indexed terms that delivered substantially higher netbacks than the China business appears structured to provide.
In May (2026-05-19), Poland declined to extradite a suspect in the September 2022 Nord Stream attack, straining relations with Germany and further fragmenting an investigation that spans several European jurisdictions. Whether the sabotage is ever prosecuted changes nothing commercially: the pipelines are destroyed, the European gas market has reorganized around alternative supply, and no political scenario currently puts Russian gas back into German networks.4
For gas traders, the near-term uncertainty is not whether Russia rebuilds European market share — it will not — but whether Power of Siberia 2 ever moves from a signed framework to sanctioned construction. The operational test will come when Beijing and Moscow try to agree on a price: a take-or-pay gas price that works for Gazprom's upstream economics but also undercuts the alternatives available to Chinese buyers at $15.52 JKM. That gap has not narrowed.