Russia and China Sign Binding Power of Siberia 2 Deal, Reshaping Global Gas Flows

Russia and China Sign Binding Power of Siberia 2 Deal, Reshaping Global Gas Flows The legally binding deal shifts Russian gas eastward and pressures European supply diversification efforts. Russia and China signed a legally binding deal on Tuesday (2026-05-19) to build the long-delayed Power of Siberia 2 pipeline, a move likely seen as a defiant signal to the West. Gazprom CEO Alexei Miller confirmed the agreement, which would deliver 50 billion cubic meters of Russian gas to China annually via Mongolia.^7,1 The 50 bcm capacity would roughly double Russia's current pipeline exports to China, which are approaching the 38 bcm contractual ceiling of the existing Power of Siberia 1 line. European volumes have already collapsed from roughly 150 bcm in 2021 to about 25 bcm in 2024, mostly through TurkStream and the Ukraine transit corridor that Kyiv let expire on 1 January 2025. The eastward pivot is Moscow's primary strategy to replace that lost revenue, even as it locks Russia into a single, price-sensitive buyer.^4,5 But the project remains hostage to a pricing standoff. The deal's signature does not resolve the impasse between Gazprom and CNPC over price terms, Mongolian transit conditions, or Beijing's preference for portfolio diversification through Qatari long-term LNG and other projects.⁴ The war in Iran and the resulting energy shock could revive China's interest in the stalled pipeline, analysts told RFE/RL. With the Strait of Hormuz shut, halting oil and LNG shipments, Beijing faces a liquidity crunch in spot markets that makes long-term pipeline gas more attractive.^2,3 Platts JKM LNG front-month traded at $19.93 per MMBtu on Thursday (2026-07-16), flat on the session. The ICE Endex TTF front-month settled at €54.37 per MWh on Wednesday (2026-07-15), up 2.47%. European supply concerns have persisted since Kyiv allowed the Ukraine transit corridor to expire on 1 January 2025. [LIVE PRICES]⁴ Gazprom and CNPC signed the original Power of Siberia 1 take-or-pay contract in May 2014, for 38 bcm per year over thirty years, with first gas delivered in December 2019. That line is on track to reach design capacity in 2026, with deliveries near 31 bcm in 2024 and 2025 estimates approaching the ceiling.⁴ Yet China's leverage is not absolute. The Kremlin has been eager to expand its energy market in China, which will need more gas in coming years to substitute for an eventual phasing down of coal, according to Vita Spivak, an energy analyst at Control Risks. Beijing must weigh that need against the risk of over-reliance on a single, politically encumbered supplier.¹ The pipeline's routing through Mongolia adds another layer of negotiation. Transit terms remain unresolved, and Beijing has been slow to concede pricing flexibility, preferring to hold multiple supply options open.⁴ For Europe, the deal signals that Russian supply lost on the western front is being rebuilt for the east. It also removes Moscow's incentive to return to European markets, reinforcing the continent's pivot to LNG and renewables.^5,6 The unresolved risk is whether the Iran conflict accelerates or derails final negotiations. If the Strait of Hormuz remains disrupted, China's near-term LNG scarcity could force CNPC to concede on price, unlocking a final investment decision. But if diplomatic talks reopen the waterway, Beijing's urgency to commit to a 30-year deal with Gazprom may fade considerably.^2,3 Traders are watching CNPC's next round of bilateral talks. Any shift in its pricing stance before the winter peak would signal whether Power of Siberia 2 moves from paper to steel.¹