Russia’s Gas Gamble: What’s at Stake in the Power of Siberia 2 Pipeline?

The recent agreement on the route and construction of the long-delayed Power of Siberia 2 (POS-2) pipeline between Presidents Vladimir Putin and Xi Jinping has been hailed as a major win-win for both Russia and China. However, upon closer inspection, it’s clear that this project is far from a done deal.

The POS-2 pipeline aims to transport Russian natural gas from western Siberia through Mongolia to China, with an expected capacity of 50 billion cubic meters per year. This would make it one of the largest pipelines in the world, dwarfing even Nord Stream 1, Russia’s most important former gas export route to Europe.

For Russia, POS-2 represents a lifeline after European countries slashed their gas imports from Russia following Moscow’s invasion of Ukraine. By building a new pipeline to China, Putin hopes to replace lost revenue and maintain Gazprom’s dominance in the global energy market. For China, POS-2 offers a more secure alternative to imported liquefied natural gas (LNG), which is vulnerable to disruptions at strategic chokepoints.

However, significant hurdles remain before this project can become a reality. Analysts agree that the primary stumbling block is commercial – specifically, the price of gas. Unlike Russia, China has taken its time in negotiations, pushing for heavily discounted pricing linked to domestic benchmarks while Moscow wants terms closer to those of the first Power of Siberia pipeline.

The Russian side’s urgency is palpable. With Europe no longer a major buyer, Putin desperately needs long-term export demand to monetize stranded gas reserves. But China recognizes Russia’s weak negotiating position and has been using this leverage to its advantage. As one analyst noted, “Russia urgently needs revenue stability, but China wants secure, low-cost supply.”

This power dynamic raises questions about the true cost of this pipeline for Russia. Will Moscow be able to recover lost revenue through POS-2, or will it merely paper over the losses incurred due to Europe’s shift away from Russian gas? And what does this mean for Gazprom, which has already seen its stock price plummet in recent months?

Furthermore, there are concerns about the feasibility of the project itself. While Russia’s state-owned Gazprom has ample experience building large-capacity pipelines through challenging terrain, construction timelines are notoriously long – and the POS-2 pipeline will cross a third country, Mongolia, adding complexity to the endeavor.

The ongoing negotiations between Moscow and Beijing highlight a fundamental tension in this project: Russia needs revenue stability, while China desires secure, low-cost supply. But how will this commercial conundrum be resolved? Will Russia sacrifice its prices to appease Chinese demands, or will Beijing compromise on terms closer to those of the first Power of Siberia pipeline?

For Russia, POS-2 represents not only a new revenue stream for Gazprom but also economic multiplier effects for Russian pipeline construction companies and steel producers. However, at what cost? Will Moscow be able to recover its infrastructure investments through POS-2, or will it merely serve as a temporary Band-Aid for lost revenue due to Europe’s shift away from Russian gas?

While Gazprom has ample experience building large-capacity pipelines, construction timelines are notoriously long – and the POS-2 pipeline will cross a third country, Mongolia, adding complexity to the endeavor. Can Russia deliver on its promises to China, or will this project become another costly exercise in futility?

The Power of Siberia 2 pipeline represents more than just an energy deal between two countries – it’s a testament to their deepening economic interdependence. But what does this mean for the rest of the world? As global energy dynamics continue to shift, will POS-2 become a model for other nations seeking secure, low-cost supply? Or will it serve as a cautionary tale about the perils of relying on single suppliers?

As we watch the ongoing drama unfold between Moscow and Beijing, one thing is clear: this pipeline is more than just a simple energy deal. It’s a reflection of the shifting global landscape – and the complex relationships between nations, economies, and energy markets. The outcome will have far-reaching implications for all parties involved.