Page 5 - FSUOGM Week 16 2022

FSUOGM COMMENTARY FSUOGM

year Power of Siberia, which delivers gas from in the air. Sanctions also bar Western companies
produced at the Chayandinskoye field, and in a from supplying equipment and technology for
few years it will handle supplies from the nearby LNG plants in Russia, and Russia largely cannot
Kovyktinskoye field as well, both of which are develop these things itself.
located in Eastern Siberia. With Power of Siberia Russia embarked on a localisation drive after
currently sending only 10.5 bcm per year of gas relations with the West collapsed in 2014, aimed
to China, Russia will be able to ramp up supplies at making its oil and gas industry more sanc-
by a further 27.5 bcm per year over the coming tions-proof by developing local manufacturing.
few years. But the results have been largely disappointing.
Russia also struck a second, 10 bcm per year Novatek won praise for developing its own liq-
gas deal with China in February, for deliveries uefaction technology, Arctic Cascade. But after
from fields off Sakhalin Island that will flow via a trialling the technology at Yamal LNG, Novatek
new border crossing in the Far East. The contrac- CEO Leonid Mikhelson lamented in September
tual amount is set to be reached in the mid- to last year that “it works, but it is bad.” He blamed
late-2020s. Russian manufacturers for poor workmanship,
However, besides Novatek’s 23-bcm Yamal noting that the company had brought claims
LNG plant, there is currently no way that gas against almost all the suppliers involved.
from Russia’s vast fields in Western Siberia that The second option for Russia is building
currently satisfy European demand and reach thousands of kilometres of pipelines to bring its
Asian markets. And the infrastructure necessary vast Western Siberian gas reserves to China. Rus-
to achieve this would be colossal in scale. sia has already been working on the construction
Russia faces two main options for redirecting of such a project for several years. Power of Sibe-
its gas exports eastwards, and both present sig- ria 2 would deliver up to 50 bcm per year of gas
nificant challenges. First, it could accelerate the produced on the Yamal Peninsula in the Russian
development of LNG exports, building new liq- Arctic to China via Mongolia. But while current
uefaction plants in the Arctic and linking them market conditions are highly favourable, Mos-
to fields that previously served Europe. However, cow and Beijing are yet to clinch a gas supply deal
there are huge question marks about Russia’s to support the pipeline’s construction, and nego-
ability to achieve this. tiations could take some time. After all, it took
Russia’s largest gas supplier Gazprom has the two sides over a decade to agree a contract to
been trying to develop a second LNG terminal to underpin the first Power of Siberia.
complement the Sakhalin-2 plant in the Far East And there are limits to how much gas China
for years, without success. Novatek has enjoyed will really want to take from Russia. The larg-
better success. But it will now struggle to imple- est energy consumer in the world, China has
ment new projects as financing has dried up in long pursued a policy of import diversifica-
the wake of sanctions, and its French partner tion. It avoids relying on any one supplier for
TotalEnergies has said it will not commit to any too great a share of its energy, and it has several
further investments in Russia. Novatek’s second other options for extra gas, including Turk-
plant Arctic LNG-2 was due online in 2023. But menistan and various LNG exporters including
with the exit of several financiers, its fate is also Australia.™

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