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Nikola Mikovic

After years of negotiations, Russia has finally secured a binding agreement with China for the construction of the Power of Siberia 2 pipeline, a conduit running through Mongolia from the Arctic gas fields of Yamal. Although some Western media see the deal as Russian President Vladimir Putin’s “diplomatic victory”, in reality it is Beijing that will be the major beneficiary of the project.
Following the Western sanctions on Moscow, imposed as a result of the Russian invasion of Ukraine in 2022, the European Union – once a major buyer of Russian energy – began looking for alternative suppliers. Such a move forced the Kremlin to redefine its energy policy.
In the past, Putin helped Germany develop its economy by supplying it with relatively cheap Russian gas. But his actions in Ukraine, along with the sabotage of the Nord Stream pipeline, marked the end of such arrangements. This left Moscow with little choice but to shift its energy flows from the West to the East.
Unwilling to easily lose the European market, the Kremlin initially attempted to turn Turkey into a gas hub. The idea was to increase gas supplies to Turkey, hoping that Ankara would re-export Russian gas to Europe, but the plan never fully worked.
The level of energy trade between Russia and Europe is nowhere near what it was before the war. Russia’s share of EU imports of pipeline gas dropped from more than 40 per cent in 2021 to about 11 per cent in 2024.
At the same time, Russia’s energy giant Gazprom has significantly increased gas supplies to China. According to reports, in 2024 it sold 31 billion cubic metres (1.1 trillion cubic feet) of natural gas to Beijing. Gazprom CEO Alexei Miller said an agreement had been reached to increase supplies via the existing Power of Siberia pipeline, which runs from eastern Siberia to China, to 44 billion cubic metres a year.


That still cannot compensate for the 155 billion cubic metres Russia sold to Europe in 2021. More importantly, Russia is selling gas to China at a rate 23 per cent lower than what it charges Europe. That could be one of the reasons behind Gazprom plunging to a net loss of US$6.9 billion in 2023.
Even if the Kremlin manages to complete its Power of Siberia 2 pipeline project by 2027, its planned capacity of 50 billion cubic metres per year will still not be enough to offset the loss of the European market. Also, the fact that the price of gas supplied via the new pipeline will be agreed separately indicates that the Kremlin will almost certainly have to accept terms favourable to Beijing, highlighting Russia’s reduced leverage and increasing reliance on China.
It seems certain that the price will be lower than what Europe used to pay, but it remains unclear whether China actually needs that much natural gas in the first place. The recent discovery of a large gas field in the South China Sea, estimated to contain more than 100 billion cubic metres of natural gas, could help reduce Beijing’s reliance on imported gas, including from Russia.
China’s energy transition could also play a role. Reports show that the world’s second-largest economy is using less natural gas, indicating that Beijing’s investment in clean energy is starting to yield tangible outcomes. In the long term, this trend could further limit China’s demand for Russian gas.


What should also worry Moscow is that its gas deal with Beijing will heavily depend on a third party – Mongolia. The landlocked nation is expected to serve as an important transit country for Russian natural gas. In 2021, Gazprom opened a subsidiary company called Gazoprovod Soyuz Vostok in Mongolia, a clear signal that the Kremlin takes the Power of Siberia 2 project seriously.
Last year, Moscow and Beijing reportedly considered a potential new route through Kazakhstan, which could carry around 35 billion cubic meters of gas. However, this route would require extensive construction, making its implementation economically questionable while also raising political risks. Additionally, the development of gas production in western China’s Xinjiang region, which borders Kazakhstan, helps partially meet the energy needs of China’s western regions through domestic supply.
That is likely one reason why Russia and China chose Mongolia, rather than Kazakhstan, as a transit country. There are, however, certain political risks.
It is not a secret that Mongolia is trying to develop closer ties with the United States, Japan and the EU, all of which are geopolitical rivals of Russia and China. In February, British and Mongolian officials “affirmed the strong partnership between their countries, grounded in shared democratic values, open societies, and a growing economic relationship”.

Could that be why President Xi Jinping urged Russia and Mongolia to deepen their energy and financial bonds with Beijing while fending off “external interference”?
The June 2019 edition of the US Defence Department’s “Indo-Pacific Strategy Report” included Mongolia in the camp of Indo-Pacific democracies, positioning it as Washington’s “reliable, capable and natural partner”. However, geography prevents Ulaanbaatar from acting as the US ally in the region.
Sandwiched between Russia in the north and China in the south and economically dependent on both, Mongolia is unlikely to be in a position to potentially obstruct gas transit from Russia to China. Instead, it is expected to benefit by collecting transit fees. However, the major winner will almost certainly be China, purchasing Russian gas at below-market prices and making Moscow even more dependent on Beijing.


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Opinion

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China

The new pipeline will allow China to buy Russian gas at below-market prices and make Moscow even more dependent on Beijing


The new pipeline will allow China to buy Russian gas at below-market prices and make Moscow even more dependent on Beijing.


Russia

Energy

Mongolia

United States

Vladimir Putin

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Why China, not Russia, will gain most from Power of Siberia 2 pipeline

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The new pipeline will allow China to buy Russian gas at below-market prices and make Moscow even more dependent on Beijing

The new pipeline will allow China to buy Russian gas at below-market prices and make Moscow even more dependent on Beijing