Russia's Gas Exports to China Rise 25% Amid European Revenue Declines

Russia plans to ramp up its pipeline gas exports to China by about 25% in 2025, highlighting an increasing energy collaboration with Asia as ties with Europe grow tense. A source with knowledge of the situation indicated that Russian gas exports to China via pipeline may reach around 39 billion cubic meters next year, a notable increase from last year's figures.

The majority of this gas travels through the Power of Siberia pipeline, which connects Russian gas fields to the Chinese market. This surge suggests that gas deliveries will likely surpass the pipeline's initial annual capacity of 38 billion cubic meters. Gazprom, Russia’s state-run energy company, has indicated that exports will exceed initial projections due to rising demand from China.

This upward trend demonstrates Russia's strategy to shift its energy exports toward the east following a significant withdrawal from European gas markets amidst the ongoing conflict in Ukraine. Europe previously held the position as the largest purchaser of Russian natural gas, providing a substantial source of revenue for the country. However, political unrest and sanctions have resulted in a steep decline in gas shipments to European nations since early 2022.

While Russia has redirected much of its oil supply to countries like China and India, gas has proven more challenging to reroute. Constructing pipelines takes a considerable amount of time, and new projects entail complex negotiations over pricing and other terms. Consequently, an increase in exports to China cannot completely mitigate the revenue losses from Europe.

During President Vladimir Putin’s recent trip to China, both nations agreed to boost gas deliveries through the Power of Siberia pipeline by an additional 6 billion cubic meters annually, targeting a total of approximately 44 billion cubic meters in the future. They also greenlit the plan for the Power of Siberia 2 pipeline, which could eventually transport up to 50 billion cubic meters of gas a year from Russia’s Arctic region to China through Mongolia.

However, advancements on this secondary pipeline project have been sluggish, primarily due to unresolved pricing issues. Until consensus is reached on gas prices, the project is unlikely to progress.

Furthermore, China has agreed to procure additional gas from Russia’s Far East through a pipeline originating from Sakhalin Island, with expected supplies to reach 12 billion cubic meters annually starting around 2027.

Despite these initiatives, Russia’s gaseous revenue remains under significant strain. The Russian Ministry of Economic Development predicts that from 2025 to 2028, gas export income from China will be 30% to 40% less than previous revenues from Europe. Currently, the only functioning pipeline conveying Russian gas to Europe is TurkStream, which traverses the Black Sea. Gas shipments through Ukraine ceased earlier this year following the expiration of a transit agreement.

Financial reports underscore the considerable downturn, forecasting gas exports to generate around 470 billion roubles this year, which is drastically lower than the record 1.63 trillion roubles accrued in 2022 when European gas prices soared. Revenue rates have even dipped when compared to previous years.

In essence, Russia's escalating gas exports to China signify a pronounced pivot toward Asia and a strengthened bond with Beijing. Yet, the figures clearly indicate that China cannot presently replace Europe as a gas buyer. Until new pipelines materialize and pricing disputes are resolved, Russia’s gas sector is likely to confront ongoing financial challenges, even with heightened volumes directed eastward.