China has rejected Russia’s proposal to enhance natural gas exports through Kazakhstan, dealing a devastating blow to Gazprom’s already fragile finances and raising questions about Russia’s energy future in Asia.
At a Glance
- China rejected Russia’s proposal to export an additional 35 billion cubic meters of natural gas via Kazakhstan
- Gazprom faces catastrophic financial losses, reporting $7 billion in 2023 and projected $179 billion over the next decade
- The energy giant is abandoning projects in Central Asia and Latin America due to financial constraints
- A major restructuring is anticipated, potentially including asset sales and layoffs of up to 40% of staff
- China suggested the Power of Siberia 2 route via Mongolia as a better alternative, though this project faces its own delays
China’s Rejection Threatens Gazprom’s Eastern Strategy
In a significant setback to Russia’s efforts to pivot its energy exports eastward, China has firmly rejected a proposal to increase natural gas exports through Kazakhstan. Chinese Ambassador to Russia Zhang Hanhui cited practical concerns about the existing infrastructure, noting that constructing a new pipeline would be prohibitively expensive. This decision comes at a critical time for Gazprom, which has been desperately seeking new markets following its diminishing presence in Europe.
“The supply of [additional] gas from the Russian Federation through Kazakhstan is not possible, because there is one gas pipeline and it is overloaded. If we transport [more] Russian gas along this route, we will have to build a new [pipeline]. It is quite expensive. The Russian side is studying [this option], but it is not realistic. In fact, it is not going to work.” said Zhang.
The proposal would have added 35 billion cubic meters (bcm) of gas exports to China through Kazakhstan, providing a much-needed financial lifeline to the struggling Russian energy giant. Instead, Zhang suggested that the Power of Siberia 2 pipeline route through Mongolia would be a more viable option for additional gas imports to China, though this project has also faced significant delays due to financing and political complications.
Gazprom’s Financial Collapse
Once a formidable instrument of Russian foreign policy and economic might, Gazprom now faces an existential crisis. The company reported a staggering $7 billion loss in 2023, with projections showing another $10 billion loss in 2024. Industry analysts predict cumulative losses could reach an astronomical $179 billion over the next decade, fundamentally threatening the company’s survival and its ability to support Russia’s war efforts.
“Gazprom’s gas business is suffering catastrophic losses, along with it, the Russian budget is running out of money, about 40 percent of which [Vladimir] Putin spends on war.” the Moscow Times report commented.
These financial constraints have forced Gazprom to withdraw from prominent ventures across Central Asia and Latin America. A major restructuring appears inevitable, with potential asset sales and workforce reductions of up to 40%. The company’s deteriorating financial position represents a profound reversal of fortune for what was once one of the world’s most powerful energy corporations and a key source of Russian state revenue.
Europe’s Gradual Divorce from Russian Gas
Gazprom’s eastern pivot was necessitated by the collapse of its European market following Russia’s invasion of Ukraine. Before the war, over 40% of Europe’s natural gas imports came from Russia, creating what one German parliamentarian called “a strong mutual dependence.” That relationship fractured dramatically when Russia weaponized its energy supplies, leading to drastic reductions in gas flows to European countries.
Though Europe has made significant strides in reducing its dependence on Russian gas through conservation measures and alternative suppliers, Russian supplies still accounted for 14.8% of Europe’s gas imports in 2023. The “messy divorce” continues, with European countries balancing energy security, environmental concerns, and affordability while Russia loses its most profitable market. This loss of European revenue makes the Chinese rejection even more devastating for Gazprom’s future.
Regional Implications and Future Outlook
The ripple effects of Gazprom’s troubles extend throughout Central Asia. Countries like Kyrgyzstan, which have historically purchased Russian gas at discounted prices, are now reconsidering these arrangements due to deteriorating political relations. Kyrgyzstan specifically is looking to reduce its Russian gas purchases, influenced by Russia’s treatment of Kyrgyz nationals. These developments further isolate Russia in a region where it once maintained strong energy influence.
“Oil and gas combined account for 60% of primary energy, and Russia has long been the biggest supply of both. On the eve of the war in Ukraine, it provided a third of Germany’s oil, around half its coal imports, and more than half its gas.” wrote the Economist in May 2022.
Looking ahead, Gazprom faces extremely limited options. The Power of Siberia 2 pipeline via Mongolia represents a potential lifeline, but construction would take years and require substantial investment that Gazprom may not be able to finance. Meanwhile, the company’s deteriorating financial position threatens Russia’s ability to fund its military operations and maintain social spending, potentially creating significant internal challenges for the Putin regime as energy revenues continue to decline.
