Kremlin grows more dependent on China as gas flows at cut-rate prices
Photo: China pays Russia almost 40% less for gas than Europe (RosZMI)
The new contract with China does not offset falling revenues. The Kremlin is losing profit after the invasion of Ukraine, Bloomberg reports.
Russia expects that natural gas sales to China will be less profitable than supplies to Europe. This underscores the Kremlin’s vulnerability due to its growing dependence on the Asian market.
According to Russia's Economy Ministry, over the next three years, the gas price for China will be at least 27% lower than for Türkiye and other European clients. In 2025, the price gap will reach 38%.
China has not made up for losses
Forecasts show that the pivot toward China has failed to compensate for the loss of most European markets. Before the full-scale invasion of Ukraine, exports through western pipelines were the largest source of Gazprom’s revenue.
Now, after signing a major new contract, the company is becoming even more dependent on the Chinese market.
Price and supply outlook
"Prices for China are 'objectively lower' than for Europe because gas fields feeding the Asian route are closer to the customer," said Gazprom CEO Alexey Miller earlier this month.
This year, export deliveries to China are estimated at $248.7 per thousand cubic meters compared to $401.9 for western markets (excluding former USSR countries).
Rising supply volumes
In 2025, deliveries via the Power of Siberia pipeline will increase by more than one-fifth and reach its design capacity of 38 billion cubic meters per year. Earlier in September, Gazprom and China National Petroleum Corp. signed a commercial agreement to boost flows by another 6 billion cubic meters annually.
The companies also agreed to expand annual supplies via the so-called Far Eastern route from 10 to 12 billion cubic meters starting in 2027.
New Power of Siberia-2 contract
A major breakthrough for Gazprom was the legally binding memorandum on constructing the Power of Siberia-2 pipeline through Mongolia. It could provide up to 50 bcm of gas annually for 30 years.
Vladimir Putin claimed that the price formula for this route would supposedly be market-based, though details have not yet been disclosed.
Remaining European exports
For comparison, last year, Gazprom exported more than 21 billion cubic meters to Türkiye, and another 16 billion cubic meters to several friendly European countries through the TurkStream pipeline. This remains the last functioning export route to the region.
At the beginning of September, Russian Gazprom announced the signing of a memorandum on the construction of the Power of Siberia-2 pipeline to China via Mongolia.
China is the largest sponsor of the war against Ukraine. Its purchases of raw materials from Russia help Putin sustain his war machine.
