The Russia-China energy partnership faces uncertainty over the Siberian Power 2 pipeline deal, which diverts gas flows from Siberia to China instead of Europe, which is imposing sanctions on Moscow over the war on Ukraine.

Over recent months, Russian officials have met with their Chinese and Mongolian counterparts several times, and Russian Deputy Prime Minister Alexander Novak announced in September that the route of the "Siberian Force-2" line would be completed after trilateral negotiations as the line would pass to China via Mongolia.

Russia's problem is that China, the world's largest energy and gas consumer, currently has no particular incentive to approve a new pipeline.

Energy analysts say the proposed project must overcome growing economic, financial and technical challenges to bear fruit.

Moscow's bargaining power with its economically powerful neighbor has been weakened by the war in Ukraine, and questions remain about the ability of Russia's Gazprom to finance such a complex infrastructure project.

Revenues from the pipeline also remain uncertain as they face competition from China's growing shift toward renewable energy.

Putin meets his Chinese counterpart Xi Jinping in Beijing on Oct. 18 (Reuters)

What are the obstacles?

Designed more than a decade ago as part of Russia's move to diversify gas sales to Asia, the pipeline has taken on a new dimension since February 2022 — with the start of the war on Ukraine — when European consumption began to decline dramatically and forced the Kremlin to urgently seek alternative buyers for its gas.

Discussions about the pipeline were already underway when the project was discussed again during Putin's visit to China during the Beijing Olympics just weeks before Russia's war on Ukraine began.

Since then, Moscow has continued to stress its willingness to begin construction of the Siberia-2 line although China has remained largely silent on the issue.

In the midst of ongoing talks on the Siberian Power 2 line, Beijing has largely sided with Moscow during the war in Ukraine, Sino-Russian trade has grown, while Russia has sold Asian powers, including China, more oil that it can no longer sell to the West because of sanctions.

China and Russia already own the Siberian Power pipeline, which was launched in 2019 and agreed between Putin and Xi Jinping in 2014. The pipeline is expected to reach its maximum capacity of 38 billion cubic meters per year by 2025 and relies on new gas fields in eastern Siberia.

In contrast, the Siberian Power-2 pipeline aims to supply China with gas from the Yamal Peninsula, which has historically had pipelines destined for the EU market, from which Nord Stream was a major source of conflict over the years before being sabotaged in 2022.

According to Russian estimates, the Siberian Second Pipeline could transport up to 50 billion cubic meters per year.

China and Russia have yet to agree on terms for gas delivery via the new route, including pricing. Jun Yuanjiang, an Australia-based China-Russia relations analyst, points out that the negotiations are complicated with the potential for further complications, due to uncertainty over China's natural gas needs after 2030. Its reliance on renewables is expected to increase as gas consumption gradually reduces, according to the Oilprice report.

The Oil Price report believes Russia's bottom line revenue may be marginal compared to other pipeline deals struck by the Kremlin, and will not be able to keep up with lost European sales.

Investment firm BCS Global Markets estimates that the Power of Siberia-2 project would generate $12 billion in revenue a year for Gazprom and send about $4.6 billion in taxes to the state. The latter amount represents less than half of Russia's average monthly energy revenue in 2023.

According to Oil Price, there are doubts about Gazprom's ability to finance the complex Siberian Power 2 infrastructure project (Reuters)

China's Energy Strategy

Beijing prioritizes its energy security and has been active in securing natural gas contracts in larger quantities than it actually needs to avoid over-reliance on a single source.

Russian gas currently makes up a small part of China's total market with onshore pipelines crossing Central Asia from Turkmenistan, at a time when diversification is a key element of Chinese gas deals.