China and Russia’s signing of the Power of Siberia 2 memorandum signals deepening ties but avoids firm commitments. If built, it would favor China, reshaping global gas markets and geopolitics.
Another Shanghai Cooperation Organization (SCO) Summit in China, another Power of Siberia pipeline agreement. In May 2014, the SCO Summit in Shanghai provided the backdrop for Russian President Vladimir Putin and China’s leader Xi Jinping to announce that a supply contract for the Power of Siberia 1 (PoS1) natural gas pipeline had been finalized after more than a decade of discussion. Last week, the SCO Summit in Tianjin served as a platform for China and Russia to reveal that they had inked a “legally binding memorandum” for Power of Siberia 2 (PoS2).
Given the outsized importance of PoS2 to Putin since the start of the war in Ukraine, China has been in the driver’s seat with respect to the project; it is Russia’s only option for redirecting about one-third of the pipeline gas it previously sent to Europe. Up until last week, Beijing appeared content to simply discuss PoS2 despite the fact that progress on PoS2 has routinely been at the top of Putin’s wish list of diplomatic deliverables from China.
So, why did Beijing shift gears and sign the memorandum? By inking an agreement that does not obligate Beijing to do anything more than continue negotiations on PoS2, China can benefit from the political optics without having to assume the risk of becoming overly reliant on Russia for natural gas imports while delaying a decision about whether to greenlight the project. Additionally, Beijing provides Moscow with a document it can point to as an indicator of progress on PoS2, which is useful for its own political signaling to the West.
The Legally Binding Memorandum
There were several parts in the agreement: an increase of the capacity of the existing PoS1 from 38 billion cubic meters per year (bcm/y) to 44 bcm/y, an increase of the capacity of the Eastern Route from 10 bcm/y to 12 bcm/y, as well as a “legally binding memorandum” on the 50 bcm/y PoS2. The first two extensions can be considered as likely to happen, but more uncertainty remains around PoS2. Indeed, such a memorandum is an intermediate document between a declarative memorandum of understanding (MoU) and a full-fledged gas supply contract (SPA, GSA, PSA, etc.). It formalizes the political agreement between Russia and China and creates certain legal obligations for the parties: to continue negotiations, refrain from exiting the process or seeking alternative partners, and prepare and agree on the final contracts within a defined timeframe.
In this case, the most sensitive commercial details of PoS2 have yet to be agreed on—pricing formulas, Take-or-Pay conditions, annual mandatory volumes, or penalty mechanisms for under-offtake or delays in delivery. The memorandum signed last week contains no specifics. And yet it dominated headlines. That’s the paradox of PoS2: it is not a gas deal in the conventional sense.
What It Means for Russia
Russia has been “at the starting line” with Power of Siberia 2 since 2023. All the project documentation for PoS2 (on the Russian territory) and “Souz-Vostok” (linking Russia, Mongolia, and China), permits, and technical approvals are ready, highlighting just how much of the delay lies with the Chinese side.
For Russia, the primary value of PoS2 is not commercial but geopolitical. The timing and setting—the SCO Summit—were carefully chosen. The arrival of an Arctic LNG 2 cargo at China’s Beihai terminal in late August 2025, despite US sanctions (and Novatek officially confirming the start of liquefied natural gas [LNG] shipments from the Arctic LNG-2 Project), and growing purchases of discounted Russian oil by China and India, helped to reinforce the message. It seems that Russia weighed its options—tacit Western offers of sanctions relief, potential normalization with the United States under the Trump administration, and muted European re-engagement—and chose instead a public strategic alignment with China. Signing the PoS2 memorandum was a deliberate gesture, intended to demonstrate that Moscow no longer seeks to hedge between competing poles but is pivoting decisively toward Beijing.
On the energy market side, total Russian gas exports dropped from 245 bcm in 2021 to around 152 bcm in 2024. The Kremlin urgently needs to demonstrate it is opening new markets. PoS2 plays a key role in this narrative, regardless of whether it ultimately delivers significant volumes. Domestically, it is already being presented as a symbol of Russia’s continued relevance in global energy and of its ability to forge long-term partnerships on its own terms.
However, behind the ceremony lies a clear asymmetry. Russia is committing publicly, while China retains the right—but not the obligation—to move forward. That asymmetry is embedded in both the structure of the deal and the associated risks. The memorandum is legally binding in form, but it lacks enforceable commercial terms, leaving Moscow exposed to further delays or adjustments.
The project’s economics are highly uncertain. At an estimated cost of $14 billion, the pipeline is unlikely to generate meaningful returns. Chinese negotiators are reportedly demanding a price closer to Russia’s regulated domestic tariffs (roughly $1.20–$1.50 million British thermal units [MMBtu]), far below PoS1 levels (estimated at $3.50–$4.00/MMBtu) and global LNG spot prices, which averaged $10–$12/MMBtu in 2024. Under such terms, Gazprom would face minimal margins.
While previous Russian pipelines were funded entirely by Gazprom, this time the company is seeking alternative arrangements. CEO Alexey Miller has stated that financing mechanisms are under discussion, suggesting that Chinese loans or equity contributions could be included. However, no formal commitments have yet been made. Nevertheless, if China does not provide funding with presidential backing, Russian state financial institutions such as VEB and Gazprombank may be directed to finance the project regardless of commercial viability.
The likely structure of the eventual gas supply agreement would further dilute its commercial value. China has consistently favored flexible contracts with low take-or-pay thresholds—potentially as low as 50 percent—which would limit Russia’s guaranteed revenue and increase exposure to seasonal fluctuations and Chinese market optimization. Combined with discounted pricing, this structure would shift most of the commercial risk onto Gazprom.
In effect, the infrastructure would be operated under terms shaped by the buyer. Yet this imbalance is not incidental. It reflects Russia’s strategic choice: to prioritize long-term geopolitical alignment over near-term economic returns. Power of Siberia 2 is not designed to maximize margins—it is the payment of the pivot.
What It Means for China
Two major events in 2025 reshaped China’s view on LNG. First, the second trade war with the US has halted all US LNG deliveries to China since February 6. Second, the war between Israel and Iran underscored the vulnerability of LNG supplies from Qatar, which accounted for almost one-third of China’s LNG imports in the first half of 2025 and must transit through the Strait of Hormuz. LNG supplies from the two largest LNG suppliers are now potentially uncertain, while China banned coal supplies from Australia, the world’s third-largest LNG supplier, from late 2020 to 2023. China’s growing caution toward LNG is hardly surprising. Meanwhile, Russia has proven to be a reliable supplier of pipeline gas, with the PoS1 now operating at its full capacity of 38 bcm.
The combination of the arrival of a sanctioned cargo from Arctic LNG 2 and the PoS2 memorandum sends a signal to the United States that China might not need as much US LNG as previously expected, even though numerous contracts between Chinese buyers and US LNG exporters have been signed.
The Power of Siberia 2 memorandum also underscores Beijing’s message to the United States that China and Russia cannot be split. The contemplation in Washington, including by President Donald Trump, of orchestrating a “reverse Kissinger”—pulling Russia closer to the United States to balance against China—has been dismissed by Beijing as a nonstarter. Beijing and Moscow’s announcement that they intend to build yet another pipeline connecting their two countries (in addition to PoS1, there is also an oil pipeline) reinforces Xi’s praise of the robustness of the China-Russia relationship.
In addition, the timing of the signing of the PoS2 memorandum is noteworthy. Gazprom and China National Petroleum Corporation inked the document just after the conclusion of the SCO Summit, which showcased China’s efforts to reshape the international order to be more conducive to China’s interests. Just as the SCO Summit is a sign of China’s intent to forge a more multipolar world, the PoS2 deal indicates that China might reshape global gas markets by importing a lot more gas from Russia and less from other countries.
PoS2 is unlikely to move off the drawing board unless China can extract concessions from Russia on volume and price. Beijing almost certainly will press for flexibility on volumes to ensure that China is not locked into a high level of dependence on Russian gas. If China were to take delivery of the full 50 bcm, then it could be dependent on Russia for as much as 40 to 45 percent of its imported natural gas (pipeline and LNG combined) in 2040. Such overreliance on Russian gas would run counter to China’s longstanding efforts to diversify its energy suppliers. Beijing will also look to secure a lower price for PoS2 gas than it pays for PoS1 gas because China is arguably in a stronger position today than it was in 2014; China is now Russia’s “buyer of last resort” for pipeline gas, which was not the case a decade ago. Finally, China will probably want to limit any construction costs to the segment of PoS2 within its borders, which is a small fraction of the total length of the pipeline.
Implications for the Global LNG Market
Between 2021 and 2024, Chinese gas companies engaged in significant LNG contracting activity as they realized they were overly dependent on costly spot LNG supplies. They signed around 90 bcm/y of new LNG contracts, with deliveries starting between 2021 and 2029. A large share came from US and Qatari LNG, along with some volumes from the Arctic LNG 2 project, now under US sanctions. Consequently, the total amount of LNG contracted by Chinese companies increases sharply from 2021 to the end of the decade.
However, China is currently slightly overcontracted, as LNG imports unexpectedly dropped in 2025 from 105 bcm in 2024. Amid an ongoing trade dispute with the United States, Chinese buyers have diverted contracted US LNG to other destinations. The arrival of two cargoes from the Arctic LNG 2 project at the Beihai terminal in late August/early September 2025 can be seen as a test from Russia and China of the new US administration. The lack of response so far could open the door to further deliveries in the medium term, in line with China National Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation (CNPC) contractual commitments (around four million tonnes per annum in total). Meanwhile, the agreement to increase the capacity of the two pipelines (PoS1 and the Eastern route) is likely to move forward, as these expansions are limited: the additional 8 bcm/y is expected online by 2031. These modest expansions will add to contracted LNG volumes but have limited market impact.
The key uncertainty for both China and the global gas market remains the timing and volumes of PoS2 and whether it will be built at all. Beyond 2030, a gap emerges between potential China’s LNG demand and contracted supplies: contracted LNG volumes start to decline after 2029 and fall rapidly post-2033, as older contracts (mostly signed before 2022) expire. In theory, the country “could” need PoS2 gas beyond 2030 if companies choose not to renew most expiring contracts. That would even make economic sense since PoS2 gas is likely to be cheaper than LNG supplies, barring oversupplied conditions. But open questions remain: when will the pipeline start, how much gas will be contracted, and is China willing to rely so heavily on one single supplier?
Most LNG exporters tend to have a bullish view on future Chinese LNG demand growth, supporting the wave of LNG projects currently under construction. If PoS2 comes online in the early 2030s, it would strongly reduce the country’s LNG requirements, prolong the potential oversupply of the late 2020s, and narrow the LNG supply–demand gap in the 2030s. It would also give Chinese companies major leverage in contract negotiations, allowing them to renew only the expiring contracts that best fit their requirements in terms of volume, pricing, and geopolitics. A 50 percent take-or-pay on a 50 bcm pipeline would provide China with significant flexibility vis-à-vis LNG suppliers. Finally, even if it does not move forward in the next couple of years, the associated looming risk could jeopardize some LNG projects looking to take a final investment decision and force aggregators to reconsider expanding long positions.
Conclusion
The Power of Siberia 2 memorandum is a sign of Beijing and Moscow’s intent to forge an even closer energy relationship, a message reinforced by the recent arrival of two cargoes of LNG from Russia’s Arctic 2 project in China. But PoS2 is far from a done deal; negotiations over the most contentious issues remain. The implications for the global LNG market are not limited to displaced volumes and greater Chinese leverage in contract renegotiation. The pipeline is likely to bolster China’s role as a global LNG trader, with PoS2 gas consumed in China, and any LNG volumes not needed domestically resold by profit-seeking Chinese companies to other buyers. Even if PoS2 never gets built, it already shapes decisions and strategies across global gas markets—and the geopolitics behind them.
About the Authors: Anne-Sophie Corbeau, Erica Downs, and Tatiana Mitrova
Tatiana Mitrova is a Research Fellow at Columbia University’s Center on Global Energy Policy and Director of the New Energy Advancement Hub. She specializes in Russian, FSU, and global energy markets, including production, transportation, demand, energy policy, pricing, and market restructuring.
Anne-Sophie Corbeau is a Global Research Scholar at Columbia University’s Center on Global Energy Policy and a visiting professor at SciencesPo. Anne-Sophie has around 25 years of experience in the energy industry and is a recognized expert on natural gas and hydrogen.
Erica Downs is a senior research scholar at the Center on Global Energy Policy at Columbia University SIPA. Her work focuses on Chinese energy markets and geopolitics.
Image: Photo Agency/Shutterstock
