China has put an abrupt stop to a Russian proposal to export added volumes of natural gas eastward via Kazakhstan, deepening the financial woes of the erstwhile Russian energy behemoth, Gazprom.

The Russian state-controlled entity, once a critical foreign policy instrument of the Kremlin, has been forced to abandon projects in Central Asia and Latin America recently due to a lack of fiscal muscle.

Gazprom has been urgently looking east to add export volume after the dramatic loss of market share in Europe. One idea promoted by Gazprom representatives was exporting an additional 35 billion cubic metres (bcm) of gas to China via Kazakhstan’s existing pipeline network.

On April 15, China’s envoy to Russia, Zhang Hanhui, took a pin to Gazprom’s trial balloon. “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,” the Interfax news agency quoted Zhang as telling Russian journalists. Zhang insisted that to facilitate additional Chinese gas imports, the already planned Power of Siberia 2 (PS-2) route via Mongolia would be a better option.

Construction of PS-2, which has a projected capacity of 50 bcm, was originally slated to start last year, but the project has faced delays due to unresolved financing questions and political factors. Russia and Gazprom’s lack of resources to fund the cost of new pipeline construction appears to be one of the major obstacles facing the country’s energy industry.

Once a cash cow for the Kremlin, the Russia-Ukraine war has caused Gazprom’s gas unit to haemorrhage money since the company lost most of its lucrative European gas markets. The entity reported a loss—of about $7bn—in 2023 for the first time in its history; annual losses grew to around $10bn in 2024. The red ink is expected to expand from a puddle into a lake in the coming decade; according to some media reports, Gazprom losses are projected to total $179bn over the next 10 years at current exchange rates.

The Moscow Times reports that a major restructuring of Gazprom is in the offing, including the selling off of assets and layoffs of up to 40% of staff at the company’s headquarters. “Gazprom's gas business is suffering catastrophic losses, along with it, the Russian budget is running out of money, about 40% of which [Vladimir] Putin spends on war,” The Moscow Times noted.

Already, Gazprom has had to cease involvement in energy development projects in Bolivia, India, Tajikistan, Uzbekistan and Venezuela, due to the heavy losses they were incurring. For instance, Gazprom walked away from the “Shahpakhty” project in Uzbekistan after a production sharing agreement expired.

Central Asian states had been benefitting of late by buying comparatively large volumes of Russian gas at heavily discounted prices. But political factors, in particular Russia’s ongoing crackdown on Central Asian guest workers, are prompting officials in Central Asian capitals to rethink their purchasing approach. 

Kyrgyzstan’s foreign minister, Zheenbek Kulubaev, announced on April 15 that Bishkek was looking to reduce its purchases of Russian gas, hinting that the growing Kyrgyz interest in diversifying suppliers is linked to Russia’s rough treatment of Kyrgyz nationals rounded up in a raid of a Moscow bathhouse, the TASS reported. Kulubaev, speaking during a session of parliament, urged would-be Kyrgyz labour migrants to avoid Russia.

This article first appeared on Eurasianet here.