Page 6 - GLNG Week 47

GLNG COMMENTARY GLNG
Gazprom prepares Power of Siberia launch
As the Russia gas giant prepares to launch its first piped gas deliveries to China, a second pipeline deal looks as uncertain as ever
PIPELINES & TRANSPORT
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 Dmitry 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 teleconference. Putin and Xi agreed to the date on November 13 dur- ing the 11th BRICS summit 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 capacity of 38bn cubic metres per year by 2025. The project marks a major step forward for both countries, offering China greater energy security and Rus- sia an important export alternative to the Euro- pean 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 Kovykta gas fields in eastern Siberia to Blagoveshchensk, near the Chinese border. The pipeline will take three to five years to ramp up, according 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 pla- teau 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 sup- plies 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 European sanctions trig- gered by Russia’s annexation 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 incredi- bly important to Moscow’s strategy of removing Kiev’s leverage in future negotiations.
China, for its part, has been eager to start importing Russian gas, given a drive by central and provincial governments in recent years to convert industrial and residential users away from coal to gas.
Competing supplies
The Chinese government has set a target of increasing gas’ share of the primary energy mix from around 7% at present to 15% by 2030.
The goal is to alleviate China’s urban air pol- lution problem and, in order to achieve this, the government has sanctioned an array of import projects. These include the Trans-Asia Gas Pipe- line (TAGP), the Myanmar-China gas pipeline and a raft of liquefied natural gas (LNG) import terminals.
Still, despite a dizzying array of import pro- jects being greenlit in recent years, Chinese demand is beginning to ease in line with a wider economic slowdown. Chinese consumption is forecast to grow by 8% this year, down from an 18% increase in 2018.
This has raised the question of whether Rus- sian pipeline imports will end up competing with more expensive but flexible LNG imports for market share. Analysts, however, have sug- gested that geographical constraints should pre- vent the two forms of gas from overly competing with one another.
Oxford Institute for Energy Studiess (OIES) senior research fellow Vitaly Yermakov said piped gas supplies were only likely to displace a relatively minor amount of LNG demand. He said: “This is because of the geography of Power of Siberia supply: the pipeline will deliver
The Chinese government has set a target of increasing gas’ share of the primary energy mix from around 7% at present to 15% by 2030.
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w w w . N E W S B A S E . c o m Week 47
28•November•2019