Page 8 - FSUOGM Week 13

FSUOGM PIPELINES & TRANSPORT FSUOGM
Gazprom to proceed with pre-invest phase of next Chinese gas pipe
RUSSIA
Russia’s first gas pipeline project with China took a decade to negotiate.
RUSSIAN President Vladimir Putin has cleared Gazprom to begin preparations to build a sec- ond gas pipeline to China, running through Mongolia.
Putin gave Gazprom CEO Alexei Miller the order to proceed with the project’s pre-invest- ment phase, which involves a feasibility study, designs and surveying work, during a meeting on March 27.
Russia brought the Power of Siberia gas pipe- line on stream in December, enabling piped gas exports to China for the first time. The pipeline is due to ramp up to its full 38bn cubic metre per year capacity by 2025.
Moscow had been pushing for years for the construction of a second pipeline to China via Russia’s Altai region, entering China’s northwest- ern Xinjiang Province at the countries’ narrow border between Kazakhstan and Mongolia. Bei- jing was non-committal towards this plan, how- ever, because of the great distances required to transport gas from Xinjiang to demand centres in its industrialised south-east.
Instead, China has favoured the development of a pipeline through Mongolia, and serious talks began on the plan last year. According to Miller, this second pipe could flow up to 50 bcm per year of Russian gas. Power of Siberia carries gas from Eastern Siberia’s Chayandinskoye, but the Mongolian project will ship production from Gazprom’s fields on the Yamal Peninsula, in the Russian Arctic.
Gazprom has not disclosed any further
details on the project, such as its length and pre- liminary budget. Before construction can go ahead, the company would first need to agree a supply contract with China. Gazprom’s $400bn deal to deliver gas to China via Power of Sibe- ria was signed in 2014, having taken a decade to negotiate.
Russia and China are unlikely to get any- where in negotiating additional gas supplies until markets stabilise. The coronavirus (COVID-19) pandemic has significantly dented Chinese gas demand, and caused global gas prices to sink to historic lows. Gas prices are anticipated to slide further this year as the recent oil price collapse feeds into oil-indexed gas supply contracts.
Russia had hoped to receive Chinese loans and other support for Power of Siberia, but in the end had to finance construction itself. This took a considerable toll on Gazprom – the pro- ject’s initial cost was estimated at around $55bn but is widely understood to have significantly exceeded this budget. It is likely that Russia would have to bear the cost of a second pipeline on its own as well.
The International Energy Agency (IEA) expects Chinese gas demand to almost triple by 2050, with domestic production failing to keep up with consumption growth. But while Chinese gas imports are set to increase significantly over the coming decades, there are numerous suppli- ers looking to fill the void, including Turkmeni- stan and various LNG exporters. This means stiff competition for Gazprom. ™
P8
w w w . N E W S B A S E . c o m
Week 13 01•April•2020