Russia’s capacity to divert gas flows from the EU to China is very limited now and, by the time it grows, the EU will have other options

The limited prospects of long-term gas consumption growth in a decarbonizing Europe – coupled with problems related to Russia’s take-over of Crimea - have enticed Russia’s interest to consider alternative export options in recent years. In particular, Russia’s ongoing natural gas pivot eastwards could see European gas buyers competing with China as new pipeline infrastructure links legacy gas fields to new export markets. It should be noted, though, that Europe is still a massive source of gas exports for Russia (83% of Gazprom’s total gas supply was bound for Europe as of 2020).

In fact, current gas exports from Russia to China via the existing Power of Siberia 1 pipeline are fed by dedicated gas fields in Eastern Siberia, with the recently agreed Far Eastern Route (via Sakhalin) also separate from the European gas network. However, the proposed Power of Siberia 2 pipeline will change the rationale, providing optionality to Gazprom to swing exports between Europe and China and theoretically providing Russia with significant geopolitical leverage at least as far as Europe is concerned. China will, of course, be on the commanding seat as it has other options beyond Russia, gas-wise.

While this might look very rosy for Russia now, by the time Power of Siberia 2 is operational (assuming the project is carried out), the global gas market will most likely be in a very different position. In fact,?the global gas market is expected to remain tight until 2024 but not thereafter. Large additional LNG supply will be added in 2025 (most notably Qatar’s giant North Field expansion) and loosen the market significantly. As such, Russia’s market power will be significantly diminished.

All in all, Russia’s pivot towards China to mitigate its problems with the West, especially as regards the linkage of Russia’s gas pipelines, is not possible today and, when it finally becomes a reality, it might be too late as global LNG supply will be much larger. Furthermore, the EU will also be more advanced in its decarbonization efforts, which will reduce the share of gas in the EU’s energy basket.

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