Russia and China Forge Historic Agreement for Power of Siberia 2 Gas Pipeline

Russia and China have signed a legally binding memorandum of understanding to construct the Power of Siberia 2 (PoS-2) gas pipeline, a project set to deliver up to 50 billion cubic meters of natural gas annually from Russia's Yamal fields in western Siberia to China via Mongolia. This agreement, announced on September 2, 2025, marks a significant step in deepening energy cooperation between the two nations.

The PoS-2 pipeline is designed to transport natural gas from Russia's Yamal fields to China, traversing Mongolia. The agreement also includes provisions to increase gas supplies through existing routes, with deliveries via the current Power of Siberia pipeline set to rise from 38 to 44 billion cubic meters per year. The project is expected to become operational by 2030.

Russian President Vladimir Putin emphasized the project's mutual benefits and market-based pricing, stating that the pricing formula for deliveries via Power of Siberia 2 is "purely objective" in nature. He added, "There is no charity here on either side -- these are mutually beneficial agreements."

The PoS-2 project signifies a major geopolitical and economic realignment, tilting both nations further away from the West and toward deeper energy collaboration. For Russia, the pipeline offers a means to compensate for the significant loss of its European gas customers due to its 2022 invasion of Ukraine. For China, the project provides a stable and reliable supply of natural gas, enhancing its energy security amid global market uncertainties.

Beijing now holds significant leverage over the deal's terms, including price, financing, and timing, positioning itself as a future swing player in global gas markets. While Gazprom faces potential financial constraints, the project could benefit from Chinese funding. Critically, China can delay implementation, turning the pipeline into a strategic hedge while Russia has already committed politically.

The original Power of Siberia pipeline, which began operations in December 2019, was the result of a $400 billion gas sales and purchase agreement signed between Gazprom and CNPC in May 2014. This agreement was considered the biggest gas supply contract ever signed in the history of the Russian gas industry.

The PoS-2 project has been on the drawing board for a number of years, but progress on reaching an agreement has been slow, with price seen as the main stumbling block to a deal. The recent agreement marks a significant step forward in the project's development.

The PoS-2 pipeline reflects the changing dynamics of global energy markets, particularly in the context of Russia's pivot to Asia following strained relations with Europe. China is positioning itself as a dominant player in global gas markets, and the increased gas supply from Russia to China might affect global LNG markets, particularly for U.S. and Australian exporters. The construction of a major pipeline through Mongolia and the Siberian wilderness also presents infrastructure and environmental challenges.

This agreement underscores the strategic importance of energy cooperation between Russia and China, as both nations seek to navigate a complex and evolving global energy landscape.