Why the Iran war is a boost for stalled Russia-China gas pipeline

BEIJING - The Iran war and resulting energy crisis could inject new urgency into plans for a major natural gas pipeline between Russia and China. 

The long-delayed Power of Siberia 2 – which would carry gas from Russia’s Arctic Yamal Peninsula to north-east China – is expected to be high on the agenda when Presidents Vladimir Putin and Xi Jinping meet in Beijing on May 20.

The proposed conduit would deepen economic ties between the two neighbours, who have grown closer in recent years as Russia grapples with Western sanctions. It also has the potential to reshape global gas flows over the next decade. 

For Russia, Power of Siberia 2 is an opportunity to compensate for some of the lost sales of piped gas to Europe, after the region turned to other sources following the full-scale invasion of Ukraine.

For China, which relies heavily on the Middle East for energy imports, the pipeline would provide an alternative to shipments of liquefied natural gas. Still, negotiations around pricing and flexibility could prove challenging hurdles to overcome.

What is Power of Siberia 2?

Chief executive officer Alexey Miller of Russian energy giant Gazprom PJSC has described the Power of Siberia 2 network as “the largest, the most massive and capital-intensive gas project in the world”.

The proposed pipeline would extend for more than 4,000km between its starting point in the Arctic Circle and its potential end point at the megacities on China’s east coast.

The conduit would span 2,600km within Russia alone, running across the Siberian forests before traversing nearly 1,000km through Mongolia and its grasslands.

At full capacity, Power of Siberia 2 would be able to transport 50 billion cubic m of gas per year. That is almost as much as the now-dormant Nord Stream 1 pipeline that runs through the Baltic Sea from Russia to Germany, and equivalent to around a third of Russia’s exports to Europe prior to the war in Ukraine.

The Carnegie Russia Eurasia Center estimates that the construction cost could be US$34 billion (S$43.6 billion) for the sections through Russia and Mongolia. A significant part of the route across Russia would run through the Siberian territories where majority state-owned energy corporation Gazprom already operates pipelines, potentially reducing construction time and costs.

It is unclear when Power of Siberia 2 would become operational, but it is likely to be on the other side of 2030.

Are there other gas pipelines between Russia and China?

Russia already sends pipeline gas to China via Power of Siberia 1 under a 30-year supply agreement. Flows via this route started in 2019. A second conduit, the Far Eastern route, is expected to start operating in 2027.

Gazprom said it has agreed with China National Petroleum (CNPC) to increase deliveries via these two gas corridors to a combined 56 billion cubic m, up from their previous deals totaling 48 billion cubic m, Russian state newswire Tass reported. 

The addition of Power of Siberia 2 could allow Russia to roughly double its pipeline exports to China. Unlike Power of Siberia 1, which transports gas from Eastern Siberia, the new conduit would send fuel to China from the Yamal gas fields in Western Siberia that used to supply Europe.

How likely is Power of Siberia 2 to get off the ground?

For years, the project was stuck in an endless holding pattern as negotiations followed the same playbook: Mr Putin and Mr Xi would meet, Russian communiques would say progress had been made, while China’s statements would often not mention the pipeline at all.

Momentum appeared to pick up in late 2025 when Gazprom said it had signed a legally binding memorandum with CNPC to advance the pipeline.

China did not confirm a deal at that point. However, in its five-year plan unveiled in March – which set out the country’s economic priorities until the end of the decade – China said it aimed to make progress on a Russian gas pipeline.

The Iran war may have made a land link to Russia look more attractive. The closure of the Strait of Hormuz – which normally handles a fifth of global LNG supply – has raised questions about the reliability of flows from the Persian Gulf.

What are the sticking points in negotiations?

While Gazprom has said the proposed supply deal is for 30 years, it is unclear whether China will commit to buy the pipeline’s full annual capacity.

Russia wants China to agree to purchase fixed volumes to guarantee long-term revenues, while China is seeking greater flexibility in case domestic gas demand weakens or cheaper alternatives emerge. 

Pricing has also been a major sticking point in negotiations. Russian officials say the gas would be sold at market-based prices, although Gazprom has indicated that supply via Power of Siberia 2 would be cheaper than Russian gas previously sold to Europe.

How much does China need a new pipeline?

There are trade-offs for China.

Power of Siberia 2 would allow it to hedge the risk of further instability in the Middle East, as well as geopolitical or military tensions with the US, which is now the world’s largest LNG exporter. But China is wary of becoming overly dependent on a single gas supplier, and Russia is already one of its top sources. The global LNG market offers China more flexible supply options.

A new pipeline is more of a nice-to-have than a need-to-have for China.

The country’s gas demand was expanding at a double-digit clip when the deal for Power of Siberia 1 was signed. But growth has been much slower in recent years as the Chinese economy matures and coal and renewables account for a larger share of the country’s energy mix.

What would Power of Siberia 2 mean for the rest of the gas market?

China is the world’s largest importer of LNG. Supply from Power of Siberia 2 and an increase in flows from the other two conduits from Russia could replace China’s need for more than 40 million tonnes of LNG per year, BloombergNEF estimated. That is equivalent to more than half the country’s imports of the super-cooled fuel in 2025.

If China buys less LNG, this could free up supply for importers elsewhere in Asia and Europe, bringing down prices and helping ease inflationary pressures.

That is good news for LNG buyers but less so for exporters, in particular new terminals coming online and developers looking to make a final investment decision on prospective projects.

Less appetite from China could undermine US President Donald Trump’s push to boost US energy exports. BLOOMBERG