Putin faces threats from Xi, who wields leverage over Gazprom's operations.

Xi Jinping allegedly uses Gazprom as leverage against Vladimir Putin.

Gazprom struggles at the bottom, as Europe's lucrative clients have vanished, replaced by Vladimir Putin's plans for a new pipeline to China. The deal seems almost finalized, but Beijing has conditions that Moscow can't meet, yet may be forced to.

Russia's Gazprom is feeling the brunt of Russia's attack on Ukraine more than any other company, causing it to slip into the red for the first time since 1999 with a staggering loss of almost 6.4 billion Euro. This dire financial situation is likely to persist as the "Financial Times" reported in early June that Gazprom's troubles are far worse than they appear. An internal report to the board revealed that Gazprom may take up to ten years to recover from the effects of the Ukraine invasion and western sanctions.

This shouldn't come as a surprise, as the independent Russian news agency Agentstvo reported several months ago that Gazprom had supplied as little gas in the first half of 2023 as it had last in 1978. Russian journalist and energy expert Michail Krutichin summed it up succinctly: Gazprom has brought about its own financial demise at Putin's behest.

"China's appetite for energy is insatiable"

Vladimir Putin, however, has a plan to revive Gazprom: redirecting the gas that used to be sold profitably in Europe towards China. Putin is keen to impress Xi Jinping, the Chinese state leader, with the new pipeline "Power of Siberia 2".

The 2600 kilometer long and highly expensive pipeline could transport up to 50 billion cubic meters of natural gas from the resource-rich Yamal Peninsula in Russian north through western Siberia to China every year. These volumes are similar to the best Nord Stream times, and China needs the gas.

"The Chinese have a Five-Year Plan," says energy analyst Andreas Schröder in the "Wieder was gelernt" podcast from ntv. "Natural gas is indeed fossil, but they see it as a clean bridge technology. According to their plans, gas consumption in China will significantly increase in all forecasts. They are developing their own production facilities mainly in Central China and importing a lot of liquefied gas. That is more expensive than pipeline gas from Russia. In this regard, China has a strong interest in Russian gas deliveries. China's energy hunger is simply immense."

"We have a positive trajectory"

The giant project seemed like a perfect business opportunity: Russia gains a new major client for its gas, China a reliable supplier. All that's needed is the signature, and it seems to be just around the corner. So Putin touted it in April 2023 when Xi Jinping visited Moscow as his good Russian friend.

"Gazprom met the wishes of its Chinese partners and even made additional deliveries that exceeded the agreed amount," Putin said confidently at a press conference. "This speaks to our company as a responsible and reliable supplier. Further growth will be possible through the construction of the gas route 'Far East' and the implementation of 'Power of Siberia 2'."

Russian media reported previously, citing Putin, that "all agreements have been reached"; however, it seems there was a misunderstanding, as the seemingly perfect deal refused to go through.

Half a year after Xi's visit to Moscow, Putin reciprocated and traveled to Beijing's capital. The "Power of Siberia 2" was once again a central topic. According to Putin, "all parties want the project," the Kremlin chief stated in Beijing. "We are still working on implementation, but I think we have a positive trajectory." However, an agreement was not reached subsequently.

Another Gas Pipeline?

But Putin didn't give up. In May, he traveled to China again, and he reiterated: Russia and China will deepen their energy partnership. Both countries intend to build the "Power of Siberia 2" to transport Russian gas to China. Gazprom and other involved companies just needed to agree on the pipeline's route. Putin also hinted at the possibility of building a new gas pipeline "in the same corridor."

Deputy Russian Prime Minister Alexander Novak, who was also in China, was more explicit: The contract would be "signed in the near future," Putin's top oil and gas manager stated on Russian state television.

"Negotiations failed initially"

However, just a few days after the visit, the "Financial Times" reported, citing three people familiar with the talks, that the negotiations over the pipeline between Russia and China had "failed initially." China allegedly made "unreasonable demands."

According to the "Financial Times," these demands include: China would only take a small percentage of the 50 billion cubic meters of natural gas that the "Power of Siberia 2" could supply to China each year. China also wanted to pay the same price for the gas that Gazprom charges in Russia. Domestic customers pay significantly less for the fuel due to subsidies.

Energy expert Krutichin commented on the report in the "Welt": "If the information is correct, which is very likely, the Chinese want the Russian taxpayer to pay for their imported gas." Gazprom could not agree to such a price.

China currently pays significantly less for Russian natural gas than Gazprom previously demanded from European clients like Germany. However, the "South China Morning Post" also reported that Beijing is still waiting for a scenario in which Russia would finance the entire pipeline project alone.