Mongolia and the Power of Siberia-2

Mongolia would be a transit state for the proposed Power of Siberia-2 gas pipeline, yet its interests and constraints are often treated as an afterthought. Bill Bikales recently returned from a mid-September trip to Ulaanbaatar and has generously agreed to share his reflections on Mongolia’s choices.

Mongolia’s High-Stakes Choices on Power of Siberia-2

Since the CEO of Russian energy giant Gazprom announced the signing of a ‘legally binding MOU’ with China National Petroleum Corporation (CNPC) regarding the Power of Siberia-2 (PoS-2) gas pipeline, attention has centered on China’s ambiguous stance on the rumored agreement. Little thought, however, has been paid to the economic and strategic benefits and risks of PoS-2 for Mongolia, the transit country at the center of the pipeline. Clearheaded assessment and firm negotiations with its two much larger neighbors will be essential if PoS-2 is to be a positive step for Mongolia.

Mongolia has promoted this pipeline for years. When PoS-1 was negotiated in 2012, then-President Elbegdorj urged that it include a Mongolian route. After the PoS-1 project was finalized without a Mongolian segment, the Government of Mongolia began persistently calling for a second pipeline that crosses their country. Mongolian President Khurelsukh and Prime Minister Zandanshatar have both endorsed the pipeline plan since the September announcement.

Mongolia’s economic interests are clear. Mongolia will earn transit fees of as much as $1 billion per year, 4% of current GDP, if the line is utilized at full capacity of 50 bcm/yr. PoS-2’s planned route passes near Ulaanbaatar, Mongolia’s capital, offering access to natural gas that could replace substantial coal-burning heat and power generation and help solve the grave winter air pollution problem in Ulaanbaatar.

Strategically, Mongolia’s credibility as a partner to her autocratic neighbors has seemed questionable, given Mongolia’s democratic system and close ties with the US and other western countries. In today’s global environment maintaining such an ambivalent stance may no longer be viable. PoS-2 could lead to an enhanced role for Mongolia in the Russia-China strategic partnership and add momentum to other trilateral initiatives, such as the China-Mongolia-Russia Economic Corridor, which has not achieved much tangible progress to date.

PoS-2 would be a clear signal of Mongolia’s acceptance that its path to prosperity lies in deeper economic integration with its two giant neighbors, uncomfortable as that might be. Until now, that integration has been almost entirely directed toward China, whose importance in Mongolia’s economy ...