Gazprom: expansion into the Chinese market and potential for long-term investors?

This article examines the current state and future prospects of Gazprom (MOEX: GAZP) under the constraints of sanctions and restrictions in the European market. The analysis focuses on the implications of sanctions for the company’s export potential, including the loss of access to the European market and foreign technologies, as well as a reduction in foreign currency revenue. The expansion into the Chinese market, whose importance for Gazprom is growing, is also highlighted. Additionally, the role and limitations of liquefied natural gas (LNG) supplies to China are considered. The article concludes with an emphasis on Gazprom’s medium-term outlook, exploring potential supply plateaus by 2027−2028 and revenue forecasts from its Chinese operations, where the company may reach design capacities on key routes, solidifying its dependence on the Chinese market in the long term.

Gazprom holds a leading position in the Russian and global gas sectors. In recent years, the company has actively developed its export projects, redirecting supplies to Asia in response to changes in the global energy landscape and China’s increasing reliance on energy resources. Strategic contracts and infrastructure projects create new investment opportunities in Gazprom’s securities.

Sanctions imposed on Russia and its key corporations have significantly impacted Gazprom’s operations. These effects are evident in several areas, including restricted access to the European market, financing challenges, and the need to reorient towards new markets and partners. Key consequences of sanctions include:

1. Restricted access to the European market — until 2022, Europe was the primary buyer of Russian gas. Gazprom actively exported through key pipelines like Nord Stream and Nord Stream 2 (Sziklai et al., 2020; Weiner et al., 2024). However, sanctions and the refusal of several EU countries to purchase Russian gas resulted in a significant decline in exports to Europe (Nikas et al., 2024). The sabotage of Nord Stream and Nord Stream 2 (Abrahamsson et al., 2024) further disrupted these supply routes (Statista Research Department, 2024).
2. Loss of access to foreign technologies and financing — sanctions have limited Gazprom’s access to research collaborations with European countries in gas extraction and infrastructure expansion and modernization. These restrictions forced Gazprom to seek alternative financing sources within Russia or partner countries (Corbeau & Mitrova, 2024; Milov, 2024; Rudnik, 2024).
3. Reorientation to the Asian market — the decline in European supplies compelled Gazprom to increase its presence in the Asian market, particularly in China. Projects like Power of Siberia, Power of Siberia 2, and the Far Eastern Route have been accelerated to expand supplies to China, which is rapidly increasing its energy demand. This shift has partially offset European losses but required significant infrastructure investments (Gazprom PJSC, 2023; PrCS Analytics LLC, 2024).
4. Reduced foreign currency revenue — payments from Europe were typically made in euros and US dollars. The shift to trading with China and other Asian countries, often in rubles (Figure 1), has reduced Gazprom’s access to more liquid foreign reserves (Elite Soft LLC, 2024; Gazprom PJSC, 2023).
5. Long-term risks and instability — the active and potential imposition of sanctions limits Gazprom’s global ambitions, increases dependence on political decisions from Russia and China, and necessitates alternative payment methods. The risk of additional sanctions in the near future could further impact Gazprom’s long-term financial prospects and complicate the implementation of large international projects (S&P Global Market Intelligence & S&P Global Commodity Insights, 2024).

Overall, sanctions have significantly influenced Gazprom’s strategy and financial position. While the company remains resilient in the Russian market and continues its Asian export development, the sanctions create long-term challenges for operational and financial stability.

Amid restrictions in Europe, the Chinese market has become strategically important for Gazprom. Given China’s growing energy demand and its goal to diversify gas sources, Gazprom sees potential for substantial supply expansion and long-term collaboration. According to forecasts, gas consumption in China will increase with urbanization and the transition to greener energy sources (Song et al., 2024). This positions China as one of the most promising export destinations for Gazprom.

In 2024, the Power of Siberia project continues to demonstrate positive dynamics, with Gazprom planning to deliver over 1 billion cubic meters above initial targets (Ignatieva, 2024). By 2028, the company plans to launch Power of Siberia 2 with a design capacity of 50 billion cubic meters annually (Alifirova, 2024) and the Far Eastern Route (formerly Power of Siberia 3), projected to reach 10 billion cubic meters annually by 2027 (Alifirova, 2023). However, the ambitious Power of Siberia 2 project faces significant challenges, and its timeline, despite optimistic official statements (Interfax, 2024), remains uncertain (Downs et al., 2024; Ratner, 2024). Thus, the prospects of Gazprom’s three key projects shape two potential export scenarios to China by 2030 (Figure 2):

• Neutral scenario — 48 billion cubic meters annually.
• Optimistic scenario — 98 billion cubic meters annually.

Depending on the scenario, Gazprom’s infrastructure development could account for 34% to 69% of China’s pipeline gas imports by 2030.

LNG plays a significant role in China’s gas imports. Gazprom has several LNG projects targeting the Chinese market, with projected supply growth of 1.7 times to 6 billion cubic meters annually by 2030. This growth is driven by the development of Sakhalin-2 and Sakhalin-3 projects (Hasanova, 2024), in which Gazprom holds a stake. However, LNG remains a secondary specialization for Gazprom, accounting for only 10% of its exports to China and 4% of China’s total LNG imports in 2024 (Kondratov, 2023). By 2030, LNG’s share is expected to range from 6% to 11% of total gas supplies to China, depending on the scenario (Figure 3).

Despite Gazprom’s medium-term prospects, several factors hinder further gas supply expansion to China. Experts predict that China will aim to cap its import dependency on foreign gas at 40%-50% (Belogoryev, 2024). In 2024, this figure stood at 43% with an import volume of 180 billion cubic meters, likely leading to a "plateau" in Gazprom’s supplies: new infrastructure will stop receiving funding, and existing pipelines will reach design capacities without further growth (Figure 4).

While cumulative revenue will likely grow over time, annual cash flow from Chinese partners may be regulated exclusively through pricing, assuming a price discount for China at least until 2027 (RBC, 2024). Additionally, delays in the Power of Siberia 2 project and competition from the Turkmen Line D project may further affect Gazprom’s plans (Kislov, 2023; Lisitsyna, 2023).

This underscores China’s status as a key buyer of Russian gas in the coming years. Consequently, expectations for new large-scale infrastructure projects — pipelines or LNG facilities — are limited, given LNG’s 11% share of Gazprom’s exports to China.

Gazprom’s strategic prospects, as well as opportunities for investors, are largely confined to the medium-term period — until all planned infrastructure reaches design capacity over the next 5−10 years. After achieving full pipeline capacity, further development of capabilities and creation of new projects in partnership with other countries appear unlikely. China is poised to remain Gazprom’s key partner, with future import volumes stabilizing at 2030 levels.