Shares of Gazprom, the Russian energy behemoth, fell sharply on Tuesday following the announcement of a “legally binding” memorandum with China to move forward with the long-stalled Power of Siberia 2 pipeline project.

On the Moscow Exchange, Gazprom’s stock closed down 3.1% at 130.7 rubles, resulting in a loss of over 100 billion rubles (approximately $1.2 billion) in market capitalization.

This drop marked the most significant decline among all companies on the exchange’s main index, more than doubling the index’s overall fall of 1.4%.

The anticipated Power of Siberia 2 pipeline, which is expected to have an annual capacity of 50 billion cubic meters, has been a part of the Kremlin’s plans for nearly 20 years. The urgency of the project has increased as Moscow looks for alternatives to compensate for the steep decline in Gazprom’s previously lucrative exports to Europe.

However, investors quickly pointed out that the agreement reached in Beijing is merely a memorandum of intent and does not represent a binding supply agreement.

Sergei Kaufman, an analyst from the investment company Finam, cautioned that if the project progresses, it could strain Gazprom’s already troubled finances.

The 2,600-kilometer pipeline is projected to cost around 2 trillion rubles ($25 billion, based on current foreign exchange rates from Reuters), and there has been no confirmation from China regarding its financial involvement in the project.

Gazprom’s CEO, Alexei Miller, informed reporters in Beijing that pricing details would be determined at a later date.

Earlier reports indicated that Beijing was interested in committing to only a portion of the pipeline’s capacity and was looking for significantly discounted prices compared to domestic Russian tariffs, which hover around $120 to $130 per thousand cubic meters, according to energy analyst Alexei Gromov.

In contrast, Moscow desires to charge the same rate as that for the existing Power of Siberia 1 pipeline, currently ranging from $265 to $285 per thousand cubic meters.

Even so, that price would still reflect a roughly 30% discount compared to current European rates.

Industry expert Mikhail Krutikhin estimated the project’s cost at about 2 trillion rubles ($24.8 billion) and warned that Russia might end up subsidizing Chinese gas consumers at its own cost.

“Given the significant expenses related to pipeline construction and field development, Russia will essentially continue to subsidize Chinese gas consumption to its own detriment,” he stated.

The situation presents challenging implications for investors.

Despite Gazprom reporting a net profit of 1.2 trillion rubles ($14.8 billion) last year and nearly 1 trillion rubles ($12.4 billion) in the first half of 2025, its primary gas operations remain unprofitable, with a deficit of 1.1 trillion rubles ($13.6 billion) anticipated for 2024.

The company’s cash reserves have plummeted from 2 trillion rubles at the beginning of 2022 to just over 537 billion rubles ($6.6 billion) by mid-2025.

Some analysts believe that if deliveries through Power of Siberia 1 and an additional eastern route are expanded, Gazprom could supply more than 100 billion cubic meters of gas to China each year, potentially boosting annual revenue by up to $20 billion.

However, they caution that this outcome is still several years away.

“For the time being, this is merely a statement of intent,” commented Igor Sokolov, an analyst at Alor Broker. “If the term ‘memorandum’ had been replaced with ‘contract,’ Gazprom’s stock could have surged by as much as 20%.”