Page 36 - Russia OUTLOOK 2023

Russia currently exports natural gas from eastern fields to China through
the Power of Siberia 1 pipeline. Western fields, which serve European
markets, are not connected to this export route and cannot be redirected to
China.

The new Power of Siberia 2 pipeline is being discussed now and will connect
the two fields and eventually enable Russia to redirect flows eastwards when it
comes online in 2030.

Meanwhile, without European customers, Russia will be forced to close
production sites at significant long-term capital cost. Export revenues from gas
will dry up. Attempts to diversify export routes by building new liquified natural
gas export capacity are hindered by lack of access Western technology, and in
any case will take years.

The commercial conditions in the Chinese market are much worse for Russia
than those in the European market. Before the Ukraine war, Russia was
estimated to charge $3 per million British thermal units (mmBtu) for deliveries
to China via the Power of Siberia pipeline, while the estimated charge for
deliveries to Europe was $10-$25/mmBtu. The best long-term case for
Russia’s gas business is to serve China as the dominant buyer. In the
short-run, the situation is much more dire.

Europe has so far managed to replace significant volumes of gas supplies that
previously came from Russia with LNG.

36 Russia OUTLOOK 2022 www.intellinews.com