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FSUOGM COMMENTARY FSUOGM
Gazprom prepares Power of Siberia launch
As the Russian gas giant prepares to launch its first piped gas deliveries to China, a second pipeline deal looks as uncertain as ever
RUSSIA
WHAT:
Russia has said the Power of Siberia will be officially launched on December 1.
WHY:
The pipeline holds major significance for both Russia and China.
WHAT NEXT:
The future of a second pipeline is cloudy, suggesting it may be easier simply to ramp up LNG trade.
MORE than a decade in the making, the Power of Siberia natural gas pipeline will finally start operations next week.
Russian Presidential Press Secretary Dmi- try Peskov has said the pipeline will begin pumping gas from fields in eastern Siberia to China on December 2, with Russian President Vladimir Putin and his Chinese counterpart Xi Jinping set to attend the ceremony via tel- econference. Putin and Xi agreed to the date on November 13 during the 11th BRICS sum- mit in Brazil, the TASS news agency quoted Peskov as saying this week.
Russia’s state-run Gazprom aims to begin initial deliveries at around 10mn cubic metres per day, before ramping up to a peak capac- ity of 38bn cubic metres per year by 2025. The project marks a major step forward for both countries, offering China greater energy secu- rity and Russia an important export alterna- tive to the European market.
In the pipeline
Negotiations between Gazprom and China National Petroleum Corp. (CNPC) took around a decade before the two finally signed a $400bn, 30-year supply contract in 2014. Gas pricing, which was the largest hurdle to overcome, was eventually linked to international oil prices, with Russian officials noting that the formula’s base price was set at about $360 per 1,000 cubic metres.
Power of Siberia will pump gas about 3,000km from the Chayandinskoye and Kovy- kta gas fields in eastern Siberia to Blagovesh- chensk, near the Chinese border. The pipeline will take three to five years to ramp up, accord- ing to Fitch Ratings senior director Dmitry Marinchenko, who said: “The resource base is trickier than Gazprom’s fields in the west of the country and requires more drilling.”
Gazprom has estimated that output at Chayandinskoye, which will feed the pipeline until Kovytka can be brought online in 2022, will reach 25 bcm per year by 2024. After Kovytka comes online, the field’s output is forecast to plateau at 25 bcm per year by 2025.
When the pipeline does launch it will open up the Chinese market to piped Russian gas supplies for the first time, even as Gazprom’s pipeline supplies to Europe face an uncertain future. Russian deliveries to Europe have been plagued by issues such as Moscow’s dispute with Ukraine over transit fees as well as Euro- pean sanctions triggered by Russia’s annexa- tion of Crimea in 2014.
With Russia and Ukraine’s 10-year gas sup- ply and transit agreement set to expire at the end of the year, and no clear path to a new deal before the deadline, Power of Siberia is incred- ibly important to Moscow’s strategy of remov- ing Kiev’s leverage in future negotiations.
China, for its part, has been eager to start importing Russian gas, given a drive by central
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w w w . N E W S B A S E . c o m Week 47 27•November•2019