Russia Slashes China Gas Price Offer as Europe Scrambles to Refill Storage

Russia has cut its 2025 pipeline gas export forecast to 72 billion cubic meters, down 10.7% on the year, while offering China discounts of 27–38% below what Turkey and remaining European buyers pay — a concession that signals how badly Moscow needs a deal on the long-stalled Power of Siberia 2 pipeline. The offer, embedded in government forecast documents, lays bare the asymmetry in the negotiations. China's domestic gas output rose 2.7% in early 2026, Beijing holds 1.23 billion barrels of crude inventory — 92 days of refining cover — and has no pressing need for additional Russian pipeline capacity. Russia, by contrast, lost its main European revenue stream after Ukraine terminated the transit agreement in January 2025, removing over 15 bcm of annual corridor capacity. First-half 2025 gas production fell 3.2% to 334.8 bcm despite Power of Siberia 1 running above its 38 bcm nameplate capacity on some days. LNG growth was capped at 35.7 million metric tons — a modest 3% increase — by U.S. sanctions on the Arctic LNG 2 project. Russian gas now accounts for 18% of EU imports, down from 45% in 2021, and Brussels is targeting a full phase-out by 2027. Putin and Xi concluded talks Wednesday with only a "general understanding" on Power of Siberia 2's route and construction methods, Kremlin spokesman Dmitry Peskov confirmed. The proposed 2,600-kilometer line from Yamal through Mongolia would deliver 50 bcm annually — roughly matching Nord Stream 1 before its destruction. Pricing, financing, and construction timelines remain unresolved. Gazprom is internally targeting September for final terms, but China's 15th five-year plan commits only to "early-stage" work, with actual construction requiring eight to ten years. The pricing concession is steep given the domestic baseline. Russian domestic gas averages $120–130 per thousand cubic meters; Power of Siberia 1 pricing is estimated at more than double that. Any Power of Siberia 2 deal would lock Moscow into structurally lower Asian pricing for decades, substituting lost European margins with discounted Chinese volumes. While Russia negotiates from weakness in the east, Europe's storage problem is sharpening. Gas storage stood at 36.7% full on May 18, according to AGSI data, compared with 43.64% a year earlier. Reaching even the reduced 80% target by November 1 would require roughly 700 LNG cargoes — about 180 more than last year's injection cycle. TTF futures settled at €46.26 on Tuesday, having touched €49 per megawatt-hour on May 15, the highest in five weeks. The Strait of Hormuz has been effectively closed since late February, cutting Qatari flows that had supplied 12–14% of European LNG imports. Gazprom posted its first annual loss since 1999 — $7 billion in 2023 — as European gas imports collapsed from 14.7 billion cubic feet per day in 2020 to 4.4 Bcf/d in 2024. Russia's combined oil and gas export revenues for 2025 were revised up to $206.1 billion, but the 2026 forecast was trimmed to $215.2 billion, reflecting persistent pressure even as crude export volumes rise. The next signal is Gazprom's September deadline. If Beijing does not move by then, Russia faces another winter with no new pipeline outlet and a European market that is gone. For European traders, June injection rates are the more immediate variable: a second consecutive slow-fill season would push TTF well above current levels before the heating season begins.