President Trump's campaign slogan "Drill, baby, drill!" could turn into "Wait, baby, wait!" for new LNG liquefaction plants in the USA for the reasons described below. President Donald Trump's promised dominance in the energy sector may be cracking.

Although China has not officially confirmed a legal agreement to build the Power of Siberia 2 (PoS 2) pipeline, but has used paraphrased language, the realisation of PoS 2 appears to have moved a big step closer - as has the capacity expansion of the existing Power of Siberia as well as the Far East Gas Link.

The additional capacities - i.e. PoS 2 (50 billion Nm3/year) plus the aforementioned capacity expansions (Power of Siberia by approx. 6 billion Nm3/year and Far East Gas Link - no specific figure) - would correspond to approx. 40 million tonnes of LNG per year and thus account for approx. 50% of current Chinese LNG imports. The LNG import peak in China could be reached around 2030 - see chart below. This depends on the realisation period required for PoS 2. A realistic commissioning date for PoS 2 would be in the early thirties - with the subsequent ramp-up of natural gas transports.

In view of the fact that China is the largest importer of LNG, these figures could turn the LNG market upside down or at least have a major impact on it. The realisation of planned LNG liquefaction projects - particularly in the USA - could thus be made significantly more difficult - keyword final investment decision.

By realising the projects, Russia would find buyers for its gas after supplies to Europe - once Russia's largest customer - virtually dried up following the invasion of Ukraine in 2022. China would hedge its exposure to LNG from the US and the US financial trade architecture - so the geopolitical message would be significant.

As China has always been concerned about energy security and has therefore always strategically pursued the diversification of energy imports, the timing of Beijing's change of heart regarding the realisation of the aforementioned projects does not appear to be a coincidence. The decision to source more Russian gas - or at least to allow this option - was apparently taken after Trump imposed comprehensive tariffs and Xi responded with levies on US LNG. In addition, tensions around the Strait of Hormuz, an important transport artery for LNG supplies, are increasing. The persistently high natural gas prices, a consequence of the war in Ukraine, also appear to have contributed to the change of heart in Beijing. As a result, Chinese buyers have not imported any US gas for over six months. This is the longest period since the last trade war during Trump's previous term in office.

To enable the materialisation of the pipeline, Russia will probably have to sell the natural gas at very low prices - close to Chinese domestic prices. If the pipeline were to be completed later than planned, and or the investments were higher than calculated and or a "flexible" purchase obligation would lead to an underutilisation of PoS 2, the economic viability would not be given - but for Russia the availability of a long-term export market - under the current framework conditions - seems to be more important than the profitability of PoS 2.

In the long run, however, the question arises as to where the cross-subsidies for PoS 2 that are likely to be required will come from in the long term. The European markets with relatively high and stable profits will not be an option from 2028 onwards. With regard to LNG, it can be assumed that Russian LNG - due to the requirement to use LNG tankers with ice-breaking capabilities - in addition to additional transshipment (transhipment from LNG tankers with ice-breaking capabilities to cheaper "conventional" LNG tankers) - is relatively expensive and difficult to sell in price-sensitive markets such as India, Pakistan, Bangladesh etc. if profit margins are to be kept high.

From China's point of view, PoS 2 as well as the capacity expansions would provide even more choice in terms of natural gas imports - thus increasing security of supply at low cost. This depends on the flexibilities agreed in the final contracts. Beijing can show that China does not need additional US LNG - this perspective will/could cause headaches for the White House and the American LNG developers.

The message President Putin is sending with these agreements about the resilience of his own LNG industry is also quite strong - at least in the short term. A cargo from the US-sanctioned Arctic LNG 2 export project docked in China/Beihai and was unloaded - putting the Trump administration's willingness to enforce sanctions to the test. This is against the background that Novatek JPSC - as the operator of the Arctic LNG 2 plant - has so far had difficulties finding a buyer even though a shadow fleet has been installed.