Putin Left Beijing Empty-Handed. The Pipeline That Explains Why China Holds All the Cards.

When Vladimir Putin arrived in Beijing on May 20, 2026, the Power of Siberia 2 gas pipeline was at the top of his agenda. The planned 2,600-kilometer pipeline would carry 50 billion cubic meters (bcm) of natural gas annually from Russia's Yamal fields to China via Mongolia — a project Moscow has framed as the centerpiece of its post-sanctions energy strategy [1]. Putin left without a deal. Kremlin spokesperson Dmitry Peskov told reporters that Russia and China had "reached an understanding on the project's main parameters," but conceded that "some nuances remain to be ironed out," with no timeline for construction [2].

Those "nuances" are, in fact, fundamental disagreements over price, financing, contract duration, and volume commitments that have stalled talks for years. The failure to close the deal during a high-profile summit — Putin's second meeting with Xi Jinping in under a year — offers the clearest window yet into the actual power dynamics of the Russia-China relationship.

The Numbers: What Russia Lost and What China Provides

Before the invasion of Ukraine, Russia's pipeline gas exports to the European Union averaged roughly 155 bcm per year, accounting for about 45% of the EU's total gas imports [3]. That relationship collapsed after 2022. Russian pipeline exports to the EU fell from 140 bcm in 2021 to 63 bcm in 2022, then to approximately 27 bcm in 2023, and continued declining to around 18 bcm in 2025 [4].

Source: EIA / CREA / Gazprom reports

Data as of May 1, 2026CSV

China has partially filled the gap, but only partially. The Power of Siberia 1 pipeline — the only operational Russia-China gas conduit — delivered roughly 31 bcm in 2024 and 38.8 bcm in 2025, surpassing Russian pipeline exports to the EU for the first time [5][6]. Yet that 38.8 bcm represents just 25% of the gas volumes Russia once sold to Europe [3]. China accounted for approximately 7% of its own total gas consumption from Russian pipeline imports in 2024 [7].

The revenue picture is equally stark. Russia's oil and gas income from raw-material exports fell 23.8%, totaling 8.48 trillion rubles in 2025 versus 11.13 trillion in 2024 [8]. In the first quarter of 2026, oil and gas revenues plummeted a further 45% year-on-year to 1.4 trillion rubles [9].

The Price Gap: $120 vs. $265

The core obstacle in Power of Siberia 2 negotiations is price. Beijing has pushed for rates aligned with Russia's domestic gas market — roughly $120 to $130 per thousand cubic meters [10]. Moscow wants terms indexed to the Asian oil-product basket, comparable to Power of Siberia 1, which analysts estimate at $265 to $285 per thousand cubic meters [2][11].

The gulf between those positions is enormous. Russia's breakeven price at the Chinese border is approximately $125 per thousand cubic meters, according to a Carnegie Endowment analysis [11]. But breakeven does not equal profit. Moscow needs to recoup the estimated $10-15 billion in infrastructure costs for the Russian section of the pipeline, and China is simultaneously demanding favorable loan terms for financing construction, with its banking sector seeking to provide between $8 billion and $15 billion under conditions Moscow has resisted [10].

Three interconnected issues remain unresolved beyond headline price: contract duration (Russia wants decades-long commitments; China prefers shorter terms as its renewable energy capacity grows unpredictably); volume flexibility (China has pushed for take-or-pay commitments as low as 50%, versus the industry standard of around 80%); and the timetable for when gas would actually begin flowing [11][12].

As one Carnegie analyst put it: "Russian negotiators are well aware that they agreed to far less profitable terms" in the original Power of Siberia 1 contract, and Beijing is using that precedent as "an anchoring point in the current talks" [11].

A Pattern of Delay

The Power of Siberia 2 has been under discussion since well before the Ukraine invasion, but negotiations accelerated — at least on the Russian side — after 2022 as Moscow scrambled for alternative buyers. A review of the diplomatic record since then shows a consistent pattern: Russian officials signal urgency, hold high-profile summits, and return with memoranda or framework agreements that lack binding commercial terms.

Putin and Xi have met more than 40 times over the course of their tenures [1]. In September 2025, Moscow and Beijing signed what was described as a "legally binding memorandum" to advance construction [2]. Yet according to The Diplomat's analysis, that memorandum contained "no price, no volume, no duration, and no take-or-pay clause" [12]. Russian and Mongolian officials publicly praised the deal, but Beijing kept noticeably quiet — no official announcements were released, and Chinese media coverage relied heavily on foreign sources [13].

The Moscow-based Institute for Energy and Finance (FIEF) assessed in 2025 that negotiations on Power of Siberia 2 implementation "have been effectively frozen over the past two years," indicating structural economic challenges beneath the political surface [14].

China's Strategic Calculus

China's posture in these negotiations reflects calculated self-interest rather than ideological solidarity. Several reinforcing factors explain Beijing's willingness to wait.

Leverage from isolation. Russia has no comparable alternative buyer for the volumes Power of Siberia 2 would carry. "Russia does not have any alternative," the Carnegie analysis concluded, "meaning Beijing faces no risk that deals will collapse" [11]. This gives China the ability to impose conditions that would have been unthinkable when Russia could play European and Asian buyers against each other.

Diversification strategy. China has spent two decades building a diversified gas import portfolio — Central Asian pipelines from Turkmenistan, seaborne LNG from Qatar, Australia, and the United States, and domestic production. Adding Russian pipeline gas is attractive but not urgent. China's LNG import contracts begin expiring in the early 2030s, and the Power of Siberia 2 pipeline would give Chinese companies greater bargaining power when renegotiating those deals [14].

Renewable energy trajectory. China is the world's largest producer of green energy technologies and has committed to carbon neutrality by 2060. Northern Chinese provinces — the regions Power of Siberia 2 would serve — have become leaders in renewable energy deployment [15]. Locking into a multi-decade fossil fuel supply contract carries long-term risk for a country whose own energy mix is shifting rapidly.

Geopolitical signaling. The Columbia University Center on Global Energy Policy noted that the Power of Siberia 2 memorandum signals to Washington that "China may need less US LNG than previously expected" [14]. The pipeline is as much a bargaining chip in U.S.-China trade tensions as it is an energy project.

Russia's Alternatives — and Their Limits

Moscow has pursued several strategies to compensate for lost European gas revenue, with mixed results.

LNG expansion. Russia's Arctic LNG projects, particularly Yamal LNG, continue to operate. But the EU — still the largest buyer of Russian LNG at 49% of total exports — is preparing a full ban by 2027 [4]. Sanctions have also complicated expansion projects. Russia's ability to redirect LNG cargoes to Asia is constrained by a shortage of ice-class tankers and limited shipping infrastructure [16].

Turkish Stream. The TurkStream pipeline has become Russia's last remaining gas supply channel to the EU, carrying approximately 43 million cubic meters per day in the first half of 2025 — about 10% of 2021 import volumes [4]. Turkey has ambitions to become a regional gas hub, and Russia has encouraged this, but the volumes involved are a fraction of pre-war European trade [17].

Central Asian competition. Russia is not the only country seeking to build a gas pipeline to China. Turkmenistan already supplies China through the Central Asia-China pipeline, and other Central Asian nations are pursuing expansions [15]. These alternatives reduce China's urgency to finalize Power of Siberia 2.

The U.S. Energy Information Administration assessed that Russia's pipeline and rail infrastructure to deliver energy into Asia "is less than the infrastructure capacity available for delivery into Europe," limiting how much trade can be redirected without massive new investment [3].

The Fiscal Squeeze

Russia's federal budget is under mounting pressure. The share of oil and gas in federal budget revenue has fallen from 42% in 2022 to a projected 22% in 2026 — a record low [8][18].

Source: OSW / Bank of Finland

Data as of Jan 1, 2026CSV

The government projected a budget deficit of 1.6% of GDP for 2026, down from 2.6% in 2025. But reality has overtaken projections: the deficit reached 4.6 trillion rubles in the first quarter of 2026 alone, already exceeding the 3.8 trillion ruble gap forecast for the entire year [9]. Low oil prices, a strong ruble, global crude oversupply, and sanctions have all compounded the shortfall [8].

To compensate, Russian authorities have raised taxes on households and businesses [18]. But without new large-scale export contracts — of which Power of Siberia 2 would be the most significant — the long-term fiscal trajectory remains constrained. If the pipeline remains unbuilt through the end of the decade, Russia will have failed to replace even half the gas export revenue it earned from Europe before 2022.

Meanwhile, crude oil prices have surged to $112 per barrel in May 2026, driven partly by the Iran conflict [19]. But this spike has not translated proportionally into Russian revenue because of sanctions-related price caps, discounts on Urals crude, and the ruble's strength against the dollar.

Source: FRED / EIA

Data as of May 18, 2026CSV

The 'No Limits' Partnership, With Limits

The February 2022 declaration of a "no limits" partnership between Russia and China was widely interpreted as a signal of durable strategic alignment. Four years later, the evidence is more complicated.

Trade data tells one story: bilateral trade surged to a record $244 billion in 2024 [20]. But it contracted by around 10% in the year to September 2025, with China's imports of Russian mineral products falling from a peak of $101 billion to $89 billion [20]. China accounts for 30% of Russia's exports and half its imports, but Russia accounts for just 3% of China's goods exports [20].

The asymmetry extends beyond economics. China abstained in 8 of 13 UN votes on Ukraine between February 2022 and February 2025, including one in the Security Council [20]. Beijing has avoided providing Russia with lethal military aid, and Chinese banks have complied with secondary sanctions to protect their access to the dollar-based financial system.

The Capital Economics research group characterized the relationship as having clear "limits," noting that "China is more important for Russia than Russia is for China" and that "this asymmetry has become increasingly clear" [20]. The Foreign Affairs analysis described it as "selective integration under pressure: strong enough to complicate Western planning and to provide each side with diplomatic leverage but constrained by enduring mistrust, asymmetric dependence" [21].

The pipeline impasse is the most concrete expression of these limits. A truly "no limits" partner would not negotiate for four years over price while the other side's economy deteriorates. China is treating Russia as a supplier to be squeezed, not an ally to be sustained.

Environmental and Regional Objections

Beyond price, there are structural arguments against the pipeline that may factor into Beijing's hesitation.

China has made international commitments to reach peak carbon emissions before 2030 and carbon neutrality by 2060. Locking into a 30-year gas import contract worth 50 bcm annually would complicate those pledges, particularly as the cost of solar and wind continues to fall [15]. Beijing's own energy planners have increasingly emphasized that "sun, wind, and water do not need to be imported, nor are they subject to international price fluctuations" [15].

Central Asian states, meanwhile, view Russian energy infrastructure projects with concern. The pipeline's planned transit route through Mongolia raises questions about whether it would increase Ulaanbaatar's dependence on Moscow or provide genuine economic benefits. Turkmenistan and other Central Asian gas producers worry that a Russia-China pipeline would undercut their own competitive position in the Chinese market [15].

What Comes Next

The summit produced 20 other trade and technology agreements, and both leaders emphasized the strength of the bilateral relationship [1][2]. But the absence of a Power of Siberia 2 deal — after years of talks, a signed memorandum, and a state visit — speaks for itself.

Russia needs this pipeline far more than China does. Every month of delay strengthens Beijing's hand, as Russia's fiscal position weakens, its alternative export options remain constrained, and China's renewable energy transition reduces its long-term gas demand growth. Putin will almost certainly return to Beijing. Whether he returns with a signed contract depends entirely on how much Moscow is willing to concede — and how little Beijing is willing to pay.