Page 5 - AsianOil Week 06 2022

AsianOil COMMENTARY AsianOil

most notably at Novatek’s Yamal LNG and vested interest, China is likely to provide sup-
upcoming Arctic LNG-2 plants in the Russian port here, and Smith does not expect sanctions
Arctic. to prove an obstacle.
Russia is also China’s third-largest gas sup- Once the gas is produced, it will be
plier, sending 16.5 bcm of the fuel in 2021, via sent to the Chinese border via the Sakha-
pipeline and in LNG form, covering around lin-Khabarovsk-Vladivostok pipeline, which
5% of Chinese gas demand. Gazprom launched is undergoing an expansion to raise its capacity
Power of Siberia in December 2019, establishing up to 13 bcm per year. This capacity could be
piped gas exports to China for the first time. taken up to 30 bcm per year if more compres-
sors are added, which would provide room not
Details only for Chinese supplies but also gas for Gaz-
Announcing the new deal, Gazprom CEO Alexei prom’s long-planned Vladivostok LNG plant,
Miller said it was “indicative of the exceptionally potentially. South-Kirinskoye could provide this
strong mutual trust and partnership between extra gas, given that plateau production capacity
our countries and companies.” is stated by Gazprom as 21 bcm per year.
“Our Chinese partners from CNPC have
already seen for themselves that Gazprom is a One down, two to go
reliable gas supplier,” he said. Gazprom is also negotiating a much larger deal
Reuters reported that supplies under the con- to deliver 50 bcm per year of gas to China from
tract would reach a plateau rate by around 2026, Russia’s far north. This gas would then flow
which Moscow-based brokerage BCS GM said through another pipeline built through Mon-
implied that deliveries would start in two or golia to China. BCS GM is fairly confident that
three years. these negotiations will bear fruit, estimating that
“Delivering gas to China’s north-eastern tip there is a 50% probability that the agreement will Gazprom is also
makes this project strategically attractive for be reached in the next 12 months.
China, as the only real alternative supply would Gazprom first unveiled plans for the pipeline negotiating a
be more expensive LNG,” BCS GM analyst through Mongolia two years ago and completed much larger
Ronald Smith said. “The global gas market is a feasibility study last year. In the pipeline’s
very much a seller’s market today, so we expect favour is that it has strong support from Beijing. deal to deliver
Gazprom got pricing that is somewhat superior Moscow had previously advocated for an alter-
to [Power of Siberia supplies], perhaps with a native pipeline through the Altai region, but 50 bcm per year
9-10% [slope]. This means that if oil is trading given the long distance it would need to extend
at $90 per barrel, the gas will be priced at $300 through Chinese territory before reaching of gas to China
per 1,000 cubic metres.” demand centres, Beijing was cold on the idea. from Russia’s far
Smith added that the fact that no transit coun- Critically, this pipeline would connect with
tries were involved, which adds $70 per 1,000 the same producing fields as those that currently north.
cubic metres in transit charges to Gazprom’s bill serve the European gas market. This would
in Europe, “the netbacks to Gazprom are quite significantly increase Moscow’s bargaining
competitive to typical European prices.” position, as it would then be able to agree con-
The challenge for Gazprom will be the timely tracts with buyers either in Europe or in China,
development of the South Kirinskoye field. The depending on who offers the higher price.
US slapped sanctions on the project in 2015, There is also a third deal that Gazprom is pur-
which will make it harder for Gazprom to access suing. Last year Miller suggested that an addi-
the necessary international technology and tional 6 bcm per year could be pumped to China
know-how to take it into production. Given its via the original Power of Siberia.™

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