The Strategic Implications of Power of Siberia-2 for Global Gas Markets and Geopolitical Energy Dynamics

The Power of Siberia-2 (PoS-2) pipeline, a proposed 50 billion cubic meters (bcm) per year natural gas artery from Russia’s Yamal Peninsula to China via Mongolia, epitomizes the intersection of energy infrastructure, geopolitical strategy, and investment risk. As of August 2025, the project remains mired in pricing disputes and transit-state uncertainties, yet its potential to reshape global gas markets and Sino-Russian energy dynamics cannot be ignored. For investors, the pipeline represents a high-stakes bet on geopolitical alignment, infrastructure resilience, and the evolving energy transition.

Geopolitical Risks and Strategic Imperatives

Russia’s pivot to Asia, accelerated by Western sanctions following the 2022 invasion of Ukraine, has made PoS-2 a cornerstone of its energy strategy. The existing Power of Siberia 1 (PoS-1) pipeline, operating at full capacity (38 bcm/year), already delivers Russian gas to China, but Moscow seeks to double its exports via PoS-2 to offset the 80% decline in European gas sales [1]. However, the project’s viability hinges on resolving a critical pricing impasse: Russia demands European-level gas prices (~$350 per 1,000 cubic meters), while China insists on domestic rates (~$60 per 1,000 cubic meters) [2]. This 500% price gap reflects broader strategic asymmetries—Russia’s need for revenue versus China’s leverage in energy negotiations.

Mongolia’s role as a transit state further complicates the equation. The country excluded the Soyuz Vostok segment of PoS-2 from its 2024–2028 national development plan, signaling reluctance to become a geopolitical proxy for Sino-Russian interests [3]. This exclusion underscores the fragility of transit-state cooperation in energy corridors, where smaller nations risk entanglement in great-power rivalries. For investors, Mongolia’s political stability and alignment with either Russia or China could determine the pipeline’s timeline and cost overruns.

Risk-Adjusted Investment Considerations

From a risk-adjusted perspective, PoS-2’s potential rewards are tempered by its geopolitical volatility. If completed, the pipeline could generate $10 billion annually for Gazprom, but its 2030 operational target remains aspirational [4]. In contrast, the Sakhalin-to-China pipeline—a shorter-term alternative with 10 bcm/year capacity—offers a more immediate revenue stream by 2027, leveraging existing LNG infrastructure to bypass PoS-2’s political hurdles [5]. This divergence highlights the importance of diversification in energy infrastructure portfolios, where patience and flexibility mitigate exposure to geopolitical shocks.

Quantifying geopolitical risks requires frameworks that integrate pricing disputes, transit-state stability, and Sino-Russian dynamics. A Geopolitical Risk Index for energy projects, for instance, evaluates factors like institutional quality, conflict likelihood, and trade resilience [6]. Applying such tools to PoS-2 reveals a high-risk profile: unresolved pricing negotiations (a 70% uncertainty factor), Mongolia’s transit-state vulnerability (a 40% risk premium), and China’s strategic caution (a 30% delay probability). These metrics suggest that investors should allocate capital to PoS-2 only if hedged against alternative routes or if geopolitical alignment improves by 2030.

Broader Implications for Global Gas Markets

PoS-2’s success would not only reshape Sino-Russian energy interdependence but also disrupt global gas trade flows. By 2030, China aims to raise natural gas’s share of its energy mix from 8.4% to 15%, with Russian pipeline gas offering a cheaper and more stable alternative to LNG imports from the U.S. and Australia [7]. This shift could reduce global LNG demand, particularly in Asia, while accelerating Russia’s pivot to Asia. However, China’s parallel investments in renewables and coal—accounting for 59% of its energy mix—suggest that PoS-2’s long-term demand may plateau unless decarbonization policies intensify [8].

Conclusion

The Power of Siberia-2 pipeline embodies the dual-edged nature of energy infrastructure in a multipolar world. For investors, its strategic value lies in its potential to deepen Sino-Russian ties and diversify global gas supply chains, but its risks—geopolitical, pricing-related, and transit-state—demand rigorous risk-adjusted analysis. While PoS-2 remains a high-reward proposition, the path to realization depends on resolving pricing disputes, securing Mongolia’s cooperation, and aligning with China’s energy transition goals. In the interim, shorter-term projects like the Sakhalin-to-China pipeline offer a more tangible avenue for capital deployment in the evolving Siberia-China energy corridor.

Source:
[1] The Future of the Power of Siberia 2 Pipeline [https://www.energypolicy.columbia.edu/publications/the-future-of-the-power-of-siberia-2-pipeline/]
[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=AfmBOopqkgiIwdyQb0w2qJRaGuybwZwCil6a1Z1UO0WSMgbTOS5uwIgD]
[3] 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/]
[4] Strategic Equity in Siberia-China Energy Corridors: A 2025 Investment Analysis [https://www.ainvest.com/news/strategic-equity-siberia-china-energy-corridors-2025-investment-analysis-2508/]
[5] 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]
[6] Geopolitical risk index for guiding international sustainable [https://www.sciencedirect.com/science/article/pii/S2666955225000280]
[7] China Belt and Road Initiative (BRI) investment report 2025 [https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2025-h1/]
[8] What the Conflict in the Middle East Means for China's Natural [https://www.energypolicy.columbia.edu/what-the-conflict-in-the-middle-east-means-for-chinas-natural-gas-supply-security/]