Russia and China Sign Landmark Agreement for Power of Siberia 2 Pipeline

In a significant development for global energy markets, Russian President Vladimir Putin and Chinese President Xi Jinping have signed a legally binding memorandum to construct the Power of Siberia 2 (PS2) gas pipeline. This agreement, announced during a meeting in Beijing on September 2, 2025, aims to deliver up to 50 billion cubic meters (bcm) of natural gas annually from Russia's Yamal fields to China via Mongolia over the next 30 years.

The PS2 pipeline, also known as the Altai gas pipeline, has been under discussion for nearly two decades. Initial plans were postponed in 2009 due to disagreements over pricing and competition from other gas sources in the Chinese market. The project was revived during the APEC summit in 2014 but faced further delays. In 2022, Mongolia's Prime Minister announced the completion of a feasibility study, with construction slated to commence in 2024. The pipeline is expected to be approximately 2,600 kilometers long, running through eastern Mongolia into northern China, and aims to deliver up to 50 bcm of gas annually.

In addition to the PS2 agreement, Gazprom and China National Petroleum Corporation (CNPC) have agreed to increase gas supplies through existing routes. The capacity of the original Power of Siberia pipeline will rise from 38 to 44 bcm per year, and the Far Eastern Route's capacity will increase from 10 to 12 bcm annually. These expansions are part of a broader strategy to strengthen energy cooperation between Russia and China.

The signing of the PS2 memorandum signifies a strategic pivot for Russia, as it seeks to compensate for reduced gas exports to Europe following its invasion of Ukraine in 2022. By redirecting its energy exports towards China, Russia aims to mitigate the economic impact of Western sanctions and the loss of European markets. For China, the agreement enhances energy security by diversifying its gas import sources, reducing reliance on liquefied natural gas (LNG) imports from countries like the United States, Qatar, and Australia.

Despite the memorandum's significance, key commercial details, such as pricing, remain unresolved. Gazprom CEO Alexei Miller indicated that price terms would be set later, noting that the gas price for China will be lower than for European Union countries due to reduced transportation costs. Analysts caution that while the agreement is strategic, it isn't a final deal until price and timelines are settled.

Following the announcement, Gazprom's stock experienced a decline, closing down 3.1% on the Moscow Exchange and erasing more than 100 billion rubles ($1.2 billion) in market value. Investors expressed concerns over the project's financial implications, given its estimated cost of approximately 2 trillion rubles ($25 billion) and the absence of a committed funding source from China.

This development marks a continuation of Russia's efforts to strengthen energy ties with China, especially in the wake of geopolitical tensions with the West. The original Power of Siberia pipeline, operational since 2019, was completed five years after its signing and ahead of schedule. The PS2 project, if realized, could reshape global gas markets by providing China with a substantial and stable gas supply, potentially influencing global LNG investments and reinforcing China's energy security amid instability in other regions.

As the PS2 project progresses, stakeholders will closely monitor the resolution of outstanding commercial terms and the project's impact on global energy dynamics.