Critical Questions by Jane Nakano and Leslie Palti-Guzman

Published September 5, 2025

Moscow and Beijing have staged a communication and diplomatic coup that could firmly anchor Russian gas flows eastward. If materialized, the Power of Siberia 2 (PoS-2) gas pipeline project would reassert the strategic weight of Russian resources after the 2022 invasion of Ukraine, even as the United States and Qatar dominate their respective spheres: U.S. liquified natural gas (LNG) largely into the Atlantic and Qatari LNG into the Pacific. There are key details that remain to be agreed upon, yet the Power of Siberia 2 deal raises significant implications, ranging from its effect on China's gas import profile to the U.S. role in the global energy markets.

Q1: What did China and Russia agree on, and what is left to be negotiated?

A1: Russia and China struck a preliminary agreement to construct an additional natural gas pipeline during Russian President Vladimir Putin's September 2 visit with Chinese President Xi Jinping in Beijing. The memorandum to construct the PoS-2 entails a 2,600-kilometer pipeline to carry gas supplies of up to 50 billion cubic meters (bcm) annually, from Russia's Yamal Peninsula to northern China, via eastern Mongolia. If PoS-2 materializes, China could be importing over 100 bcm of Russian gas after 2030, accounting for more than one-fifth of its projected 2030 demand.

The PoS-2 deal, described by state-owned Gazprom of Russia as a legally binding agreement, was years in the making. Since Russia proposed a new route earlier this decade, however, President Putin has repeatedly pleaded for China's green light on the project without avail. A major sticking point has been price. And it may still be the case even after the two sides signed the agreement. Reportedly, no agreement has been reached on price, timeline, or builder, although Gazprom CEO Alexey Miller noted that the project is designed for 30 years, with the possible first delivery by 2030.

China is known for playing a hard bargain. Reportedly, China previously asked to pay close to Russia's domestic prices, which are heavily subsidized. Price was the most significant hurdle in a decade-long negotiation to build the $400 billion Power of Siberia 1 deal (PoS-1), which China concluded in May 2014-following Russia's annexation of Crimea-and reached its targeted annual flow of 38 bcm gas supply earlier this year.

Q2: What does this agreement mean for China's role in the LNG market and for its energy security?

A2: China is a top-tier gas importer in the world, both from pipelines and LNG deliveries. China became the world's largest LNG importer in 2024, the third time since 2021. In 2024, China imported 79 million metric tons of LNG (107 bcm) and 71 bcm of pipeline gas. In fact, LNG import share has been larger than pipeline import share since 2019. As for 2025, the International Energy Agency expects China's LNG imports to decline, from a combination of pipeline import increase from the PoS-1 project and domestic output increase. China's pipeline natural gas sources include Central Asia, led by Turkmenistan (35 bcm per year), Myanmar (12 bcm per year), as well as Russia. Once completed, the PoS-2 would likely reinforce the dominance of pipeline sources in China's gas import profile. Additionally, during the September meeting, China and Russia agreed on the increase in the PoS-1 flow, from 38 bcm per year to 44 bcm per year.

Yet, China does not desire unabridged growth in import dependence. To reduce import dependence, in 2018, Xi Jinping issued instructions to increase domestic exploration and production of oil and natural gas. The country's major national oil companies have since strived and succeeded in increasing domestic production, primarily by intensifying exploration and production activities. Between 2020 and 2024, the output grew from 190 bcm to just over 245 bcm, already surpassing the target of 230 bcm under the current Five-Year Plan (2021-2025), as well as Qatar and nearly matching all of Africa.

Beijing will continue its pragmatic energy policy of balancing LNG, pipeline gas, domestic production of hydrocarbons, imported coal, nuclear, and renewables, to ensure energy security, cost control, and geopolitical hedging. Specifically, this energy mix optionality will likely give China the upper hand in gas pricing negotiations. If LNG prices remain below $12 per million British thermal unit, China is likely to ramp up spot purchases, particularly during the winter peak. However, if prices spike due to global demand or geopolitical tensions, China will likely pivot to domestic production, pipeline gas, or coal.

The announced deal with Russia will also strengthen China's role as a swing supplier. China will continue to resell and re-export its extra LNG. With a potentially over-contracted supply portfolio, China offers flexibility to the market. It holds over 65 million tonnes per annum (mtpa) in long-term contracts-a volume that will continue to rise, given the amount of new sales-and-purchase agreements that Chinese entities have signed, with up to 19 mtpa signed in 2022 alone and up to 23 mtpa more across 2023-2025 so far. Portfolio suppliers and trading arms could find themselves competing more aggressively with Chinese gas companies to place spot cargoes in Europe or South Asia as new supplies come online-notably from the United States, Qatar, and Canada.

Q3: What does this agreement mean for LNG trade relations between the United States and China?

A3: What if China is trying to convince the Trump administration and the world that it needs far less LNG-and that the fuel should not be part of any U.S.-China trade discussions? China may be projecting strength and optionality in the gas market as a negotiation ploy. Washington and Beijing have extended their pause on higher tariffs through early November. Qatar and Australia are now China's two largest LNG suppliers, while at a meager share of 5 percent in 2024, the United States is hardly a dominant LNG supplier to China. This Chinese upper-end positioning was already underscored by Australia's Australia Pacific LNG agreeing to lower its LNG price for China's Sinopec for the remaining 10 years of their existing contract.

The PoS-2 agreement casts a heavy cloud over the future of LNG ties between the world's top supplier (the United States) and top importer (China) that were handicapped by the U.S. rollout of high tariffs early in the year, combined with the halt in Chinese receipt of U.S. LNG cargos since early February. Before this halt, the two countries seemed bound to have a robust bilateral trade following a series of long-term contracts between Chinese buyers and U.S. suppliers since 2018, totaling about 27 million tons. The volume includes those projects that are in the planning stage. The bilateral LNG ties would have propelled the U.S. share to grow from about 5 percent today to 25 percent in 2030, if China's LNG demand is to grow another 40 mtpa and all the contracted volume is to reach China.

If the PoS-2 proceeds, the prospect for a larger U.S. share in this market would be in doubt. Moreover, if the additional Russian gas supply translates into the shrinking Chinese appetite for U.S. LNG-whether for a commercial or geopolitical reason-prospective LNG export projects in the United States could struggle to reach a final investment decision, while existing projects could become underutilized.

Q4: What does this deal mean for other large LNG exporters, particularly Qatar? And what are the implications for the global LNG market?

A4: Qatar was already in a delicate marketing position, facing mounting challenges in selling additional volumes from its massive export capacity expansion. The growing Beijing-Moscow gas rapprochement will only make it harder to secure additional Chinese LNG contracts for the North Field East and North Field South projects. Since 2023, when it last secured an aggregate of 11 million tons of LNG for post-2026 delivery, QatarEnergy has not signed any new long-term deals with Chinese buyers. Pricing has long been a sticking point for Qatari contracts, compounding Doha's geopolitical vulnerabilities in the wake of recent overt and covert Middle Eastern wars, which also underscored the fragility of its infrastructure and shipping routes. Iran orchestrated a missile attack on the U.S. Qatari military base in June, while regional instability forced LNG tankers to reduce traffic through the Strait of Hormuz. With Qatari supply already accounting for 24 percent of its LNG portfolio, Beijing is unlikely to expand its purchases further-unless the Russia deal pressures Qatar into softening its negotiation stance and accepting a bargain.

If realized, with the likely commencement in the early 2030s, the PoS-2 project would also reshape the global LNG market. A combination of new LNG projects coming online later this decade-primarily from the United States and Qatar-and the reduced Chinese appetite for LNG from the early 2030s, could soften the global LNG market. LNG customers may enjoy competitive pricing, while many existing LNG projects might face greater competition. The significant uncertainty this deal introduces in the global LNG market also dims the commerciality of high-cost projects, such as the proposed Alaska LNG.

Furthermore, how the PoS-2 transaction would be settled could hold a major implication for the U.S. role in the global energy markets. Following the PoS-2 announcement, Gazprom CEO Miller suggested that current payments are made half in the Chinese renminbi and the other half in the Russian rubles. If this is an indication for the choice of currency in their prospective gas projects like the PoS-2, the primacy that the U.S. dollar once held in the global energy markets would decline.

Q5: What are the implications beyond the LNG market?

A5: The deal would deepen Russia's economic dependence on China. Following the 2022 invasion, Europe has committed to weaning its dependence on Russian gas by 2027. Losing the market, which accounted for about 80 percent of its pipeline gas exports and over 40 percent of its LNG exports in 2021, renders it an urgent agenda for Russia to secure an alternative outlet. Before the war, the sale of 150 bcm of gas to Europe was earning Russia $20-30 billion on average. The Russian gas supply to China could amount to a little over 100 bcm per year when prospective pipeline projects, such as the PoS-2, commence. While the volume would be nowhere near the level of Russian exports to Europe before the war, the PoS-2 would aid Russia's long-term goal of an energy pivot to Asia.

Moscow scored big by signing the PoS-2 agreement on the occasion of the Shanghai Cooperation Organization (SCO) summit in China. Established by China, Russia, and Central Asian countries in 2001, the SCO has evolved into a strategic platform for China to protect its interests at home and abroad. Both the venue and timing of the signing send a clear signal to the world that, despite Western efforts to isolate Russia, it has a strong economic and geopolitical partner in China. Two months earlier, China's Foreign Minister Wang Yi told the European Union's Foreign Affairs Chief Kaja Kallas that Beijing did not want Russia to lose in Ukraine over a fear that "the United States would then shift its whole focus to Beijing." The current geopolitical circumstance is notably similar to one that propelled the two countries to agree on the PoS-1 in 2014, when Russia's relationship with the West rapidly deteriorated over its annexation of Crimea in February 2014. At that time, China also rescued the Yamal LNG project, a $27 billion LNG project in the Russian Arctic that had come under Western sanctions. By providing significant funding in exchange for a roughly 30 percent interest, China's national oil company, China National Petroleum Corporation, and sovereign fund Silk Road Fund helped Novatek of Russia to take the Yamal LNG project over the finish line.

Most significantly, notwithstanding the Chinese reluctance to readily publicize the agreement, the pipeline agreement is a clear sign of Beijing's defiance of Western pressure to distance itself from Russia. The pipeline agreement appears to clarify what Beijing intended when China received an LNG cargo from the Arctic LNG 2 project a week earlier. Counting China's two national oil companies among its stakeholders, the Arctic LNG 2 project has been under Western sanctions over Russia's war with Ukraine.

While Russia and China have not yet agreed on the crucial detail called "price," the Power of Siberia 2 pipeline agreement could incrementally rewrite the geopolitical map, where Russia remains relevant to the global gas market while the U.S. role diminishes. All the while, China may continue its rise as a global leader with clout of its own.

Jane Nakano is a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Leslie Palti-Guzman is a senior associate (non-resident) with the Energy Security and Climate Change Program at CSIS.

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