Russia has signed a "legally binding memorandum" on the construction of a second gas pipeline to China, Power of Siberia 2, including a transit branch, Soyuz Vostok, that will run across Mongolian territory, Tass has reported, citing an announcement by the head of Russian natural gas giant Gazprom Alexey Miller made at the Shanghai Cooperation Organisation (SCO) Tianjin summit concluding in northern China.

Moscow first unveiled plans for the pipeline, which would pump gas all the way to China from Russia’s Arctic fields via Mongolia, back in 2019.

The impetus for the project on the Russian side only increased after the 2022 full-scale military invasion of Ukraine, when state gas exporter Gazprom began losing most of its market share in Europe. Escalating tensions in the Middle East then expedited negotiations on the Power of Siberia 2 gas pipeline.

The same fields earmarked to fill Power of Siberia 2 used to deliver gas to Europe via the now-destroyed Nord Stream 1 pipeline. 

Power of Siberia 2 could potentially add 50bn cubic metres (bcm) of gas exports per year for 30 years, although the gas will have to be sold cheaper than previous supplies to Europe. A contract was also signed to increase supplies via the existing Power of Siberia from 38 billion cubic metres (bcm) to 44bcm, according to Tass.

bne IntelliNews analysis suggests that the pipeline deal should not be overstated, as with no binding supply deal and Beijing showing caution amid uncertain demand and growing LNG flexibility, the project's future remains highly tentative.

China remains the only possible buyer of West Siberian pipeline gas. In Europe, Gazprom has only one route left, with the TurkStream pipeline to Turkey carrying 16bcm per year, only a fraction of the 140bcm exported to Europe prior to Russia’s full-scale military invasion of Ukraine.

While no price for Power of Siberia 2 supplies to China have been disclosed, The Bell suggested that China is likely to extract almost domestic-level prices from Gazprom. 

Neither the exact price nor the project timeline is known yet, and most importantly, it is unclear whether the volumes are guaranteed, Bloomberg reported. The Bell also noted that the Chinese media, in contrast with the Russian media, have not singled out the Power of Siberia 2 as an SCO Tianjin Summit achievement.

Previous estimates of the pipeline cost ranged between $10bn and $15bn, with Gazprom likely to cover the cost.

Russian pipeline gas deliveries to China began in 2019 via the Power of Siberia 1 pipeline. In May 2014, Gazprom and CNPC signed a 30-year supply contract for up to 38 bcm per year through the eastern route. Since 2020, Gazprom has exceeded its annual contractual obligations every year.

In addition to Power of Siberia 1 and 2, another pipeline route is under discussion between Russia and China. The Far Eastern route (formerly Power of Siberia 3) is underpinned by a 25-year sales and purchase agreement for 10 bcm per year, signed in February 2022.

The route could be based on the existing Sakhalin-Khabarovsk-Vladivostok (SKV) pipeline, with a branch line to be constructed into China. First deliveries are expected by the end of January 2027.