Power of Siberia 2: Russia-China gas pipeline project faces many hurdles

At the Russia-China summit held this week, Presidents Vladimir Putin and Xi Jinping discussed the Power of Siberia 2 (POS-2) pipeline project – a 2,600 km pipeline expected to transport natural gas from western Siberia through Mongolia to China. On May 20, the two countries announced a common understanding on the route and construction methods, but other details are still under negotiation.

POS-2 is projected to have a capacity of 50 billion cubic meters of gas per year, equivalent to about 525 terawatt-hours of energy – nearly double the annual electricity consumption of the United Kingdom. The pipeline is roughly the size of Nord Stream 1, one of Russia's most important gas export routes to Europe, which had a design capacity of 55 billion cubic meters per year.

According to analysts, Russia wants to build this pipeline to compensate for revenue lost since European countries sharply cut imports of Russian gas following its full-scale invasion of Ukraine in February 2022. For China, pipeline gas from Russia could be a safer alternative to liquefied natural gas (LNG) imported by sea. Most of China's LNG imports must pass through strategic chokepoints such as the Strait of Hormuz and the Strait of Malacca.

Progress and value

Jack Sharples, senior research fellow at the Oxford Institute for Energy Studies, said the pipeline is logistically feasible. Russia's state gas giant Gazprom has extensive experience building large pipelines through challenging terrain. However, completion could take years. The first Power of Siberia pipeline (POS-1), connecting two gas fields in eastern Siberia to the Russia-China border, started construction in 2014, began shipments in 2019, and reached full capacity in 2024. POS-2 is slightly shorter than POS-1 but must pass through Mongolia, and the time from construction start to operation is unlikely to be much faster.

Kremlin spokesman Dmitry Peskov confirmed a “common understanding on the main parameters” but acknowledged no specific timeline. Seb Kennedy, managing director of Energy Flux, said POS-2 is “technically challenging,” but the main obstacle has always been “commercial terms,” and the discussions on “main parameters” are “diplomatic code” for no agreement on price.

Benefits for Russia

POS-2 would give Russia a major new market for gas originally destined for Europe, helping Gazprom recover some revenue. Sharples noted economic benefits for Russian construction firms and pipe steel manufacturers. However, Russia's urgent need for revenue has given China an edge in negotiations. Remi Bourgeot, economist at the French Institute of International and Strategic Affairs, said, “Russia needs revenue urgently, while China negotiates for a lower price than the European market.” Go Katayama, analyst at Kpler, explained that China is pushing for a steep discount linked to domestic benchmarks, while Russia needs a high price to cover infrastructure costs.

Benefits for China

Although not as urgent as Russia, POS-2 is a strategic opportunity for China as it seeks to diversify energy sources and reduce reliance on LNG imports. LNG depends on a complex global supply chain, vulnerable to geopolitical disruptions and price volatility. In contrast, pipeline gas from Russia offers a more secure supply route, coordinated primarily with Russia. Mongolia, a landlocked country between China and Russia with a small economy, is unlikely to oppose collecting hundreds of millions of dollars in annual transit fees.

Risks and warnings

Analysts say POS-2 is not just about energy but reflects efforts to build closer economic ties and reduce dependence on the Western order. At the summit, Putin hailed “strong momentum” despite “unfavorable external factors,” while Xi Jinping emphasized an “unwavering relationship.” However, both sides have reservations. Sharples warned, “The risk for Russia is being locked into a single customer; the risk for China is over-reliance on a single supplier.” Kennedy added, “The risk for China is over-concentration on a single, potentially hostile supplier while domestic production and renewables are expanding.”

Impact on global energy markets

POS-2 will reduce China's future LNG import demand, replacing some spot LNG needs with pipeline gas. This could ease competition and lower global LNG prices, especially during periods of weak Asian demand. Kennedy said every cubic meter China buys via pipeline is one less LNG cargo from the Atlantic Basin, putting pressure on TTF (the European gas market) in the 2030s. Go Katayama predicted the project “will accelerate the shift toward a fragmented and regionalized gas market, based on long-term geopolitical supply relationships rather than globalized LNG trade.” At the same time, it will solidify Russia's pivot to the East, but as Kennedy noted, “POS-2 is a consolation prize, not a replacement for pre-2022 export volumes.”