Russia's Strategic Gas Proliferation to China and Its Implications for Energy Markets

Russia’s pivot to Asia, accelerated by geopolitical shifts post-2022, has positioned the Power of Siberia pipeline network as a cornerstone of its energy strategy. The Power of Siberia 1 (PoS-1) pipeline, now operational at 38 billion cubic meters (bcm) per year by 2025, has already surpassed expectations, with Gazprom reporting daily flows exceeding contractual obligations as of December 2024 [1]. This success underscores the pipeline’s role in redirecting Russian gas exports from Europe to China, a market where demand for cleaner energy is surging. However, the true test of Russia’s long-term energy security—and the investment potential of this infrastructure—lies in the proposed Power of Siberia 2 (PoS-2) pipeline, a 50 bcm/year project that remains mired in negotiations over pricing and geopolitical alignment [2].

The Power of Siberia 1: A Proven Success

PoS-1’s completion ahead of schedule in November 2024 and its rapid ramp-up to full capacity demonstrate the viability of cross-border energy infrastructure in the region [3]. By 2025, this pipeline will account for nearly 10% of China’s natural gas consumption, a critical diversification for a country seeking to reduce coal dependency and meet carbon neutrality goals [4]. For Russia, PoS-1 has become a lifeline, offsetting a 66% drop in European gas exports since 2021 [5]. The pipeline’s success has also spurred ancillary investments, including nine compressor stations and gas processing facilities in Siberia, which are essential for maintaining pressure and purity in the gas stream [6]. These ancillary projects, often overlooked, represent high-margin opportunities for investors in energy infrastructure.

Power of Siberia 2: A Geopolitical and Economic Crossroads

While PoS-1 is a triumph, PoS-2 remains a work in progress. The proposed 2,594-km pipeline, which would transport an additional 50 bcm/year from Russia’s Yamal Peninsula through Mongolia to China, is stalled by unresolved pricing disputes. Russia seeks to sell gas at $257 per 1,000 cubic meters—aligned with its European rates—while China demands a price closer to its domestic level of $60 per 1,000 cubic meters [7]. This $197-per-unit gap represents a $9.85 billion annual discrepancy, a chasm that neither side is willing to bridge without strategic concessions [8].

Mongolia’s role further complicates the equation. The Soyuz Vostok segment of PoS-2, a 962-km pipeline through Mongolian territory, was excluded from the country’s 2024–2028 national development plan, signaling a lack of political commitment [9]. Mongolia’s government, caught between its economic ties to Russia and its security concerns with China, is wary of becoming a geopolitical pawn. Yet, Beijing’s rejection of alternative routes via Kazakhstan—due to existing infrastructure constraints—has forced Moscow to retain Mongolia’s inclusion [10].

Ancillary Infrastructure: The Unsung Investment Opportunities

Beyond the pipeline itself, ancillary projects tied to the Power of Siberia network offer compelling investment prospects. Gas processing facilities in Siberia, such as those in the Yamal region, are critical for extracting impurities and maximizing the value of raw gas. Similarly, storage terminals in China—part of its 2025 economic plan to expand domestic infrastructure—will be essential for managing seasonal demand fluctuations [11]. Compressor stations, which maintain pipeline pressure over vast distances, are another high-impact area. Russia’s Gazprom has already allocated resources to expand PoS-1’s compressor network, a move that could serve as a blueprint for PoS-2 [12].

For investors, these projects present a dual advantage: they align with China’s energy security goals and Russia’s need to monetize its vast gas reserves. However, the risks are non-trivial. Mongolia’s exclusion of PoS-2 from its development plan and the unresolved pricing dispute between Russia and China could delay or derail the project entirely [13].

Geopolitical Implications and Strategic Alliances

The Power of Siberia pipeline network is more than an energy infrastructure project—it is a geopolitical tool. For Russia, PoS-2 would deepen its “no-limits” partnership with China, countering Western sanctions and reinforcing a strategic alliance that challenges U.S. influence in global energy markets [14]. For China, the pipeline offers a stable, land-based gas supply that reduces reliance on LNG imports and maritime routes vulnerable to geopolitical tensions [15].

Yet, this interdependence is a double-edged sword. Russia’s urgent need for alternative markets has weakened its negotiating position, as evidenced by Gazprom’s $7 billion loss in 2023 due to reduced European exports [16]. China, meanwhile, is leveraging its energy surplus to demand favorable terms, a dynamic that could reshape the global gas pricing landscape.

Conclusion: A High-Stakes Bet on Energy Security

The Power of Siberia pipeline network represents a transformative shift in global energy markets. While PoS-1 has proven its value, PoS-2’s success hinges on resolving pricing disputes and securing Mongolia’s cooperation. For investors, the ancillary infrastructure projects—processing facilities, storage terminals, and compressor stations—offer a path to capitalize on this energy transition. However, the geopolitical risks are significant, and patience will be required. As the world watches Russia and China navigate these challenges, one thing is clear: the future of energy security in Asia will be defined by pipelines like these.

Source:
[1] Power of Siberia [https://en.wikipedia.org/wiki/Power_of_Siberia]
[2] Power of Siberia 2: A Pipeline Between Ambition and Uncertainty [https://trendsresearch.org/insight/power-of-siberia-2-a-pipeline-between-ambition-and-uncertainty/?srsltid=AfmBOoo0qSeoddRIGVLE9WcuzG3IX9H2rKCFR1nJENy4gGQhVYSthOen]
[3] China completes full pipeline for Power-of-Siberia gas [https://www.reuters.com/business/energy/china-completes-full-pipeline-power-of-siberia-gas-2024-12-02/]
[4] Power of Siberia 2: Another Russia-China Pipeline [https://www.congress.gov/crs-product/IF12748]
[5] Power of Siberia 2 pipeline future hangs in the balance [https://gasoutlook.com/analysis/power-of-siberia-2-pipeline-future-hangs-in-the-balance/]
[6] Power of Siberia [https://en.wikipedia.org/wiki/Power_of_Siberia]
[7] The Power of Siberia-2 saga: Russia's energy pivot to China faces roadblocks [https://www.orfonline.org/expert-speak/the-power-of-siberia-2-saga-russia-s-energy-pivot-to-china-faces-roadblocks]
[8] Power of Siberia 2: A Pipeline Between Ambition and Uncertainty [https://trendsresearch.org/insight/power-of-siberia-2-a-pipeline-between-ambition-and-uncertainty/?srsltid=AfmBOorRcmZpmAWJ5rliVB4vIWd5vPuLqGvCWo5FM3lTWJs7Ope-ECV4]
[9] Power of Siberia 2: Economic Opportunity or Geopolitical Risk for Mongolia? [https://thediplomat.com/2025/04/power-of-siberia-2-economic-opportunity-or-geopolitical-risk-for-mongolia/]
[10] Power of Siberia 2 Gas Pipeline - GEM.wiki [https://www.gem.wiki/Power_of_Siberia_2_Gas_Pipeline]
[11] China prioritizes gas infrastructure expansion in 2025 amid storage challenges [https://www.spglobal.com/commodity-insights/en/news-research/latest-news/lng/030525-china-prioritizes-gas-infrastructure-expansion-in-2025-amid-storage-challenges]
[12] Russia's Gazprom cuts investment budget for 2025, China remains focus [https://www.spglobal.com/commodity-insights/en/news-research/latest-news/natural-gas/112824-russias-gazprom-cuts-investment-budget-for-2025-china-remains-focus]
[13] Power of Siberia 2: A Pipeline Between Ambition and Uncertainty [https://trendsresearch.org/insight/power-of-siberia-2-a-pipeline-between-ambition-and-uncertainty/?srsltid=AfmBOoqbB7pzCJIl9pVOtuyQKJ9e73jvntHgxhZJ4EGzliTs8VrxDayY]
[14] The Future of the Power of Siberia 2 Pipeline [https://www.energypolicy.columbia.edu/publications/the-future-of-the-power-of-siberia-2-pipeline/]
[15] Power of Siberia 2: A Pipeline Between Ambition and Uncertainty [https://trendsresearch.org/insight/power-of-siberia-2-a-pipeline-between-ambition-and-uncertainty/?srsltid=AfmBOoo-pn_ZUcMouHUPrdzMeUnWdLMV_W5AOZ1V8CrioW1NRkPi-37-]
[16] Power of Siberia 2 pipeline future hangs in the balance [https://gasoutlook.com/analysis/power-of-siberia-2-pipeline-future-hangs-in-the-balance/]