The Siberia 2 Pipeline Deal

The announcement in September 2025 of the agreement between Russia and China to proceed with the Power of Siberia 2 pipeline was presented by both parties as a strategic breakthrough. The project, envisaging the delivery of some 50 billion cubic metres of natural gas per year from Russia’s Arctic Yamal fields across Mongolia to northern China in the early 2030s, is a natural continuation of the existing Power of Siberia 1 pipeline that already links eastern Siberian fields to China. Yet the rationale for this new pipeline is more complex than its fanfare suggests, and its economic foundations remain far less assured than its political symbolism.

From Russia’s perspective, the pipeline is first and foremost a strategic pivot. In the wake of the invasion of Ukraine and the effective closure of European energy markets, Moscow has had little choice but to seek new buyers. For decades, Russia had relied upon European demand to underwrite her gas export industry. The Soviet Union constructed vast networks of pipelines across Eastern Europe, and the Nord Stream projects beneath the Baltic Sea represented the culmination of a strategy aimed at binding Europe’s energy future to Russian supply. Ukraine, too, was central to this system: as recently as 2011, more than half of all Russian gas exported to Europe transited Ukrainian territory. The revenues from these transit fees gave Kyiv considerable leverage over Moscow, and they provided Ukraine with an important measure of integration into the European energy market. Russia’s subsequent efforts to circumvent Ukraine through Nord Stream and TurkStream were designed precisely to weaken this dependence. Now, with war raging and Europe turning its back on Russian hydrocarbons altogether, that entire orientation has collapsed. China represents the only plausible customer of sufficient size and with an appetite for long-term gas contracts. The Siberia 2 project therefore serves as a lifeline for Gazprom and the Kremlin, a means of demonstrating that Russia cannot be economically isolated and of asserting the possibility of a viable Eurasian energy partnership independent of Western markets. By sealing the deal at the Shanghai Cooperation Organization summit, Moscow underscored the political message that it still commands powerful allies.

For Beijing, the rationale is more subtle. China has long sought to diversify her energy sources and to ensure security of supply, reducing dependence on liquefied natural gas imports and coal. A new overland pipeline from Russia adds resilience to China’s energy portfolio, complementing LNG supplies from the Gulf and Australia while bolstering Beijing’s negotiating position vis-à-vis other exporters. The symbolism of standing shoulder to shoulder with Moscow against Western pressure is not without value either. Nevertheless China approaches the project from a position of considerable strength. Unlike Russia, she has multiple suppliers available, and therefore she holds the upper hand in negotiations over price, financing and volumes.

It is in this imbalance of power that doubts about the economic logic of Siberia 2 become most acute. Russia desperately needs to monetise her Yamal production, and the loss of Europe has left her with a shrinking pool of buyers. China, by contrast, can afford to play for time. That means Beijing is able to extract favourable terms, including low prices and flexible volumes. Key commercial details of the agreement, such as the precise pricing formula, fixed commitments, and the question of who will bear the cost of construction, remain unresolved. Estimates of construction costs range from fourteen to over thirty billion US dollars. If Russia shoulders the majority of that burden, the risk to her already strained public finances is considerable. This may explain the recent significant loss in value of Gazprom shares after the announcement that the Siberia 2 pipeline deal had been agreed: the anticipation amongst investors is that Gazprom will be compelled to shoulder the burden of a project fundementally unprofitable for Russia.

There are also wider uncertainties over long-term demand. Northern China, the principal destination of the proposed pipeline, is already witnessing slowing gas consumption. Heat pumps and renewables are expanding rapidly, while Beijing continues to invest heavily in solar and wind. These developments create the danger that Power of Siberia 2, by the time it is completed in the early 2030s, may operate well below capacity and risk becoming a stranded asset. For Russia the economic case is therefore weakened by the possibility that the project’s revenues will never offset its costs.

This vulnerability is sharpened by Europe’s accelerating transition away from fossil fuels. In the wake of the Ukraine war, European governments embarked on an unprecedented programme of investment in renewable energy, electrification of transport, and energy efficiency measures. Solar, wind and hydrogen projects have multiplied at a pace once thought impossible, while technologies such as heat pumps have spread rapidly across households and industries. These shifts are not merely temporary adaptations to the loss of Russian gas; they mark a structural reconfiguration of Europe’s energy landscape. The more Europe invests in renewables and electrification, the less realistic it becomes that Russia might one day return as a major supplier to her western neighbours. In effect, Russia’s dependence upon pipelines has turned from a strategic asset into a liability, locking her into an inflexible infrastructure system at a time when her former customers are moving towards more dynamic and sustainable sources of power.

The regional dimension of Siberia 2 adds another layer of complexity. The chosen route passes through Mongolia, a country historically caught between Russian and Chinese spheres of influence. For Ulaanbaatar, the pipeline represents both an opportunity and a risk. Transit fees and the associated infrastructure could provide welcome revenues and development, while the visibility of such a strategic project enhances Mongolia’s importance to both great powers. Yet it also risks deepening dependence upon Moscow and Beijing, constraining Mongolia’s ability to pursue a genuinely independent foreign policy. Other Central Asian states, particularly Kazakhstan and Turkmenistan, will view the project with mixed feelings. They are themselves energy exporters to China, and a vast new Russian pipeline threatens to erode their market share and weaken their leverage. In this sense, Siberia 2 is not only a story of bilateral ties between Moscow and Beijing but also part of the broader struggle for influence across Central Asia, where Russia’s leverage is already fraying in the face of China’s rising economic presence and the steady encroachment of Western, Turkish and Gulf actors.

Across the Pacific, the United States watches developments with concern. In recent years Washington has invested heavily in LNG export capacity, aiming to supply Asian markets and to reduce allies’ dependence on Middle Eastern hydrocarbons. A major pipeline agreement between Russia and China threatens to undercut this strategy by locking in Chinese demand for pipeline gas at prices likely to be lower than LNG delivered by sea. American policymakers fear that Power of Siberia 2 could erode the commercial prospects of US exporters, weaken Washington’s leverage in trade negotiations, and diminish the geopolitical dividends of the so-called “shale revolution”. At the same time, US officials recognise that the project deepens Russia’s dependence upon China, an imbalance that may over time limit Moscow’s room for manoeuvre. Washington is therefore likely to respond not by attempting to block the pipeline—an impossibility—but by accelerating its own climate and energy diplomacy in Asia, promoting renewables, and strengthening security ties with regional states wary of Sino-Russian collusion.

The Power of Siberia 2 pipeline agreement is less an economic masterstroke than a political gesture of defiance. It is a signal that Russia is not wholly isolated, and a statement of Chinese intent to diversify energy security and challenge Western influence. Yet beneath the symbolism lie unanswered questions about cost, demand and long-term viability. The deal underlines Russia’s growing dependence upon China and China’s ability to dictate terms. In the past, Russia sought to use pipelines like Nord Stream to project her influence into Europe and to hold her western neighbours in a web of energy interdependence. Ukraine’s historic role as a transit state highlighted the extent of that power. Today, with the pipelines across Ukraine largely redundant and Nord Stream sabotaged or shut down, Moscow finds herself inverting the old dynamic: dependent upon Beijing’s demand to sustain a sector once central to her global strength. Siberia 2 may eventually deliver gas across Mongolia, but in the meantime it has already delivered a powerful message: that geopolitics, more than commercial logic, drives this latest chapter in the Eurasian energy story, even as the very nature of global energy demand shifts away from the fossil fuels upon which Russia’s fortunes rest.