Discussions of the proposed pipeline often focus on the China-Russia dynamic, overlooking Mongolia’s critical role as a transit state.
In 2021, Russia’s state-owned company Gazprom recorded an historic profit of $29 billion, at a time when Moscow supplied approximately 45 percent of the European Union’s natural gas demand. By 2024, however, amid European sanctions stemming from Russia’s full-scale invasion of Ukraine, Russia’s share of EU natural gas supplies had dropped to around 20 percent. According to Gazprom’s official report, the company posted a loss of $7 billion in 2023. Although Gazprom has not yet published its 2024 international financial statement, the Financial Times reported that the company recently recorded its worst performance in modern history, with a $12.8 billion loss according to Russian accounting standards.
Following its withdrawal from the European market, Moscow reassessed its export strategy and initiated a “pivot to Asia” strategy, aiming to shift its focus toward eastern markets, particularly China.
The steady growth of China’s natural gas demand appears to offer new opportunities for Russian exporters. In 2024, China’s natural gas consumption reached 428 billion cubic meters, and experts project that it will exceed 600 billion cubic meters by 2040. Nonetheless, China’s strategy of expanding domestic production and diversifying its supply sources limits Russia’s leverage.
Among several options Moscow has proposed to expand gas exports to China, the Power of Siberia 2 (PoS-2) project is considered the most practically significant. The PoS-2 would complement the existing Power of Siberia 1 pipeline, which carries gas from fields in northeastern Siberia to China.
Notably, the PoS-2 would pass through Mongolia. In fact, the idea of the PoS-2 pipeline took shape in August 2020 when the government of Mongolia and Gazprom signed a memorandum of understanding to establish a feasibility study. Since then, what had long been a theoretical proposal has evolved into a tangible project, sparking extensive debate among policymakers, researchers, and the broader public.
For major powers, such energy infrastructure projects typically serve to expand export routes or reinforce supply networks. However, for Mongolia, this pipeline is a “mega-project” that demands the utmost caution and strategic foresight. In short, Mongolia must fully recognize that it is becoming entangled in the increasingly complex dynamics of the “no-limits” partnership between Russia and China – a partnership that, particularly in the current climate of shifting global order, is aimed at counterbalancing the West.
The Kazakhstan Alternative
In November 2024, during the “ROSTKI: Russia and China – Mutually Beneficial Cooperation” forum, Russian Deputy Prime Minister Alexander Novak raised the possibility of building a pipeline capable of supplying 35 billion cubic meters of gas annually to China – not via Mongolia and the PoS-2, but via Kazakhstan. He outlined three potential routes: constructing a new pipeline across certain regions of western Kazakhstan; connecting to China’s “West-East Gas Pipeline” network; or revitalizing the existing Central Asia–Center pipeline system, which links Russia to Turkmenistan’s gas fields.
Russia estimates that the project would require $10 billion in investment, with an expected operational launch in 2029 and full capacity to be reached by 2034. Moscow also emphasized that it remains committed to advancing the Sakhalin-Khabarovsk-Vladivostok and PoS-2 projects.
Russia’s active approach clearly reflects the high strategic priority Moscow places on expanding energy exports through every possible channel.
From Kazakhstan’s perspective, there is a relatively strong interest in serving as a transit country between Moscow and Beijing, driven by several factors. First, by facilitating Russian gas transit, Kazakhstan can secure cheap natural gas supplies for its western provinces, freeing up approximately 10 billion cubic meters of gas for export to Europe at higher prices.
Second, in exchange for allowing Russia to use its territory for transit, Kazakhstan could secure Moscow’s approval for constructing a pipeline across the Caspian Sea – a project crucial for diversifying and securing Kazakhstan’s own export routes.
However, earlier this month, China’s ambassador to Russia, Zhang Hanhui, stated in an interview with Interfax that the project to import natural gas via Kazakhstan was not feasible. He explained, “At present, the single pipeline between Kazakhstan and China is already heavily burdened. Building a new pipeline through Kazakhstan would require significant additional costs.”
From the ambassador’s remarks, it is clear that China prefers to advance the PoS-2 project. “We have agreed on the implementation of the project. The primary issue now is to finalize the route,” Zhang emphasized. “One option is through Mongolia, and the other is not. For us, the choice of route is less important than receiving the gas within a short timeframe.”
The ambassador’s comments make it evident that both Moscow and Beijing have reached a consensus on implementing the PoS-2 project. For Mongolia, which is embarking for the first time on a major trilateral project with its two neighbors, it is critical to carefully assess the strategic goals underpinning Moscow and Beijing’s cooperation, the evolving nature of their relationship, and the shifting dynamics of the external environment.
China’s rejection of the Kazakhstan route is not merely economic. Currently, China is connected to Turkmenistan through three major gas pipelines, and with the upcoming commissioning of “Line D,” annual imports could reach 65 billion cubic meters. Beijing’s energy strategy seeks to diversify suppliers while preserving control over supply channels in Central Asia.
China’s strategic behavior underscores its efforts to maintain influence in Central Asia while avoiding an overdependence on any single supplier, including Russia. Thus, Beijing’s support for PoS-2 is aligned with its broader geopolitical and energy security goals.
For Mongolia, participation in the PoS-2 project demands a careful balancing of the evolving dynamics between its two neighbors against its own long-term national interests. It is essential to recognize that once the pipeline is constructed, it would be virtually impossible to reverse or dismantle. Therefore, Mongolia must view the project not merely through an economic lens but as a complex undertaking intertwined with political, geopolitical, and national security considerations.
It is important to note that China’s 2019 National Defense White Paper explicitly states that one of the key roles of China’s armed forces is “to effectively protect the security and legitimate rights and interests of overseas Chinese people, organizations, and institutions.” Russia’s Foreign Policy Concept similarly emphasizes the protection of its interests beyond its borders. Thus, beyond focusing solely on project-specific contracts and negotiations, Mongolia must also thoroughly study and understand the strategic doctrines and policy documents of its two powerful neighbors.
The PoS-2 project could offer Mongolia an opportunity to foster mutual trust and launch a new era of constructive cooperation with its neighbors. Yet, from a broader theoretical perspective, a small, landlocked state’s vulnerability is often directly tied to the dynamics between its larger neighbors. If the “no-limits” partnership between Russia and China were to deteriorate, leading to a cooling of relations, Mongolia would find itself in an increasingly precarious external environment. In such a scenario, Mongolia’s ability to balance potential pressures from both sides could be severely constrained.
This project, while promising potential economic benefits such as increased investment, closer regional ties, and transit revenues, also carries the risk that Mongolia could become an arena for future geopolitical competition between major powers.
Ultimately, the unfolding great power dynamics surrounding the PoS-2 project place Mongolia at a critical crossroads, where decisions made today could shape the country’s fate for decades to come.
By Uyanga Uugankhuu

Published Date:2025-04-29