Post by : Saif Rahman

In a strategic move to strengthen its energy relationship with Asia, Russia plans to boost its pipeline gas shipments to China by approximately 25% this year. As relations with Europe continue to falter, Russian gas deliveries to China are anticipated to reach nearly 39 billion cubic metres by 2025, marking a substantial increase from last year.

The majority of this gas will be transported via the Power of Siberia pipeline, which connects Russian gas fields directly to Chinese markets. This increase in volume is expected to surpass the pipeline's originally planned annual capacity of 38 billion cubic metres. Gazprom, Russia's major energy corporation, has indicated that gas exports through this channel will exceed prior projections, largely due to heightened demand from China.

This surge underscores Russia's endeavor to pivot its energy exports toward Asia following the major decline in its European gas market amid the ongoing conflict in Ukraine. Historically, Europe was Russia’s primary natural gas buyer, contributing significantly to its revenue stream. However, political discord and sanctions have drastically diminished gas exports to European nations since 2022.

While Russia has managed to redirect a substantial portion of its oil exports to nations like China and India, achieving similar success with gas has proven more complex. The construction of pipelines is a lengthy process, necessitating intricate negotiations on pricing. Consequently, even with a notable uptick in exports to China, the loss of European markets remains unaddressed.

During a state visit by President Vladimir Putin to China earlier this year, agreements were made to further augment gas deliveries through the Power of Siberia by an additional 6 billion cubic metres annually, bringing future totals to around 44 billion cubic metres. Approval was also granted for the proposed Power of Siberia 2 pipeline, which could potentially transport up to 50 billion cubic metres of gas each year from Russia's Arctic locales to China via Mongolia.

Yet, advancements on this secondary pipeline are sluggish, primarily due to unresolved pricing disputes that both parties must navigate before moving forward.

China has further committed to increasing gas purchases from Russia's Far East via a pipeline originating from Sakhalin Island, with expectations of rising supplies to 12 billion cubic metres per year, beginning operations around 2027.

Nonetheless, Russia's gas income continues to face challenges. The Russian economy ministry predicts that gas export revenues to China between 2025 and 2028 may lag 30% to 40% behind what was previously earned from Europe. Currently, the only active pipeline supplying Russian gas to Europe is the TurkStream, which traverses the Black Sea, following the cessation of gas deliveries through Ukraine earlier this year after the expiration of a transit agreement.

Financial projections illustrate the dramatic revenue decline: forecasts anticipate around 470 billion roubles from gas exports this year, a stark contrast to the peak earnings of 1.63 trillion roubles realized in 2022 amidst soaring European gas prices. Comparatively, revenues have also dipped slightly from last year.

In summary, while Russia's rising gas sales to China signify a notable shift towards Asia and a strengthening partnership with Beijing, these figures highlight a critical reality: China cannot currently serve as a complete substitute for Europe in the gas marketplace. Without new pipelines and resolution on pricing matters, Russia's gas sector will likely continue to grapple with significant financial constraints, despite increased volumes flowing eastward.

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