SEATTLE (Oil Monster): Chinese President Xi Jinping and Russian President Putin signed a memorandum of understanding to construct the 'Power of Siberia 2 (POS2)' natural gas pipeline during the commemoration of the Chinese People's War of Resistance Against Japanese Aggression. Following Russia's significant decline in gas exports due to Europe's sharp decline in reliance on Russian gas after the Ukraine war, Russia is strategically shifting its energy exports toward China. Gas exports are a cornerstone of Russia's economy. The Sino-Russian strategic energy partnership aims not only to offset economic losses in Europe but also to shift Russia's energy market from the West to the East, thereby disrupting the global energy hegemony.
China has maintained an ambiguous stance on the Ukraine war, considering its international standing, and avoided resisting sanctions against Russia or providing military support. However, the recent Sino-Russian rapprochement during the commemoration signifies more than a symbolic diplomatic message to counter the US; It reflects an expansion and consolidation of economic cooperation. The recently signed gas pipeline memorandum should be viewed not merely as an energy project but as a strategic move to reshape the balance of the global energy market and international security order. Despite heightened tensions with the US over tariff negotiations, China has clearly demonstrated its intent to strengthen economic cooperation with Russia, a message that can be interpreted as targeting the US and the global LNG market.
The first Sino-Russian gas pipeline (POS1) contract, signed in May 2014, shows a similar pattern to the current situation. As Western sanctions intensified after Russia's annexation of Crimea in 2014, Russia sought to reduce its dependence on Europe and secure alternative markets by expanding energy cooperation with China. The resulting 30-year contract, supplying up to 38 billion cubic meters (bcm) of gas annually, marked a pivotal moment in bilateral economic and energy relations.
In fact, discussions about the gas pipeline began in the early 2000s, but stalled for years due to disagreements over pricing, pipeline routes, demand forecasts, and lack of political trust. China demanded favorable terms in pricing, financial sharing, and technology. Russia initially resisted, but after the Crimea annexation, the geopolitical context of reducing European dependence led to a more favorable contract for China, finally enabling the pipeline's construction. Russia began supplying gas to China via POS1 in late 2019, with annual volumes gradually increasing to 20–30 bcm in recent years.
With the European market effectively closed due to the Ukraine war, Russia has officially formalized its eastern gas export axis, strategically increasing its dependence on China. While specific contract terms are still under discussion, China holds a negotiating advantage in price, timing, and volume. Notably, China is expected to reject European or Asian benchmark pricing and instead base negotiations on the low-cost oil-linked model used in the existing POS1. Additionally, it will likely minimize the inclusion of 'Take-or-Pay' clauses—common in long-term gas contracts, which require payment for a minimum volume even if not taken. This positions China as a potential price adjuster (swing player) in the global gas market.
The two countries are currently negotiating POS2 contract terms, and it is expected to take at least 5–7 years for the memorandum to translate into actual gas supplies. However, the US and the global LNG industry must recalculate the 'China risk.' Major LNG exporters like the US, Australia, and Qatar, which have been pursuing large-scale projects based on anticipated growth in Chinese demand by 2030, may need to reconsider their strategies if the POS2 contract materializes. If China prioritizes pipeline gas and shifts LNG to a supplementary role, US LNG—with weaker price competitiveness—could fall to a lower priority in the Chinese market. South Korea and Japan must also prepare for scenarios where Asia's energy supply structure shifts toward a China-centric model.
POS2 is not merely a pipeline for Russian gas to flow into China. It signifies a potential shift in the axis of energy security, altering the dynamics of Asia's gas supply leadership. Energy security strategies must be re-evaluated in this context. Notably, following the outcome of the South Korea-US summit and tariff negotiations, Korea Gas Corporation agreed to a long-term contract for US LNG starting in 2028, with Alaska LNG as a key collaborative agenda. A thorough understanding of the implications of expanding Sino-Russian energy cooperation on regional energy security is essential.
Courtesy: www.chosun.com
