Page 4 - AsianOil Week 12 2023

AsianOil COMMENTARY AsianOil

Russia fails to clinch new gas

supply deal during Putin-Xi

talks in Moscow

The gas supply contract continues to elude Moscow.

CHINA CHINESE President Xi Jinping made his first underutilised because of reduced exports to
trip to Moscow since war broke out in Ukraine Europe. In other words, there would be no added
WHAT: this week to meet with Russian counterpart upstream cost to pumping gas from these fields
Putin-Xi talks did not Vladimir Putin. But among the raft of economic to China, as they are already developed. The Far
result in a long-term agreements that were signed during the first day, Eastern route, on the other hand, would require
contract to underpin Russia’s hoped-for contract to supply gas via a development of new and somewhat complex
the Power of Siberia 2 new pipeline to China was not among them. field projects off Sakhalin Island’s east coast.
pipeline. Russia is counting on extra gas sales to China Russia’s target is to step up pipeline gas
to offset the potentially irrevocable loss of most deliveries to China to almost 100 bcm per year
WHY: of its market share in Europe, and shipments are – equivalent to around half of its pre-coronavi-
Moscow wants the deal a already rising. The Power of Siberia 1 pipeline rus deliveries to Europe – but this is widely seen
lot more than Beijing, and delivered 15.4bn cubic metres of Russian gas as too ambitious. After a contract for Power of
the latter’s bargaining to China in 2022, up almost 50% on the level in Siberia-1 was signed in May 2014, it took more
position is much greater. the previous year, and Russia expects supply to than another five years for the pipeline to be
increase again to 22 bcm in 2023 and ramp up completed and commissioned. And it will take
WHAT NEXT: to the pipeline’s full 38 bcm per year capacity by a further eight years in total for the pipeline to
The contract could take 2027. reach full flow capacity if the 2027 target is met.
some time to materialise, However, China and Russia did not sign a In other words, assuming that the Power of Sibe-
and if it happens, Beijing long-anticipated second contract for up to 50 ria 2 project progresses at the same pace, it is very
is likely to get very bcm per year via the planned Power of Siberia unlikely to be operating at anywhere close to full
lucrative terms. 2 pipeline, which would carry gas from Arc- capacity by 2030 even if a supply contract were
tic fields that previously served the European signed tomorrow.
market to China via Mongolia. This was despite And there are many reasons to expect that
Putin claiming that nearly all parameters of the a Power of Siberia 2 contract will take longer
deal have been approved. Russian Deputy Prime to agree than Moscow hopes, and that project’s
Minister Alexander Novak said the leaders development itself will be a much more difficult
had instructed Russia's Gazprom and China’s undertaking. Furthermore, Beijing will likely be
CNPC respectively to finalise all project details able to manoeuvre its much stronger bargaining
as quickly as possible. Moscow hopes that the position to secure very lucrative terms.
contract will be signed this year, according to Negotiations for the Power of Siberia 1 con-
Novak, although the Chinese side has made no tract stalled for years because of disagreement
such statements. over gas pricing and the financing of construc-
Russia has other plans in the works to increase tion, and those same issues are likely the key
Chinese gas sales. Weeks before Moscow stumbling blocks this time around.
invaded Ukraine in February last year, it signed Russia’s alternative options for monetising
an intergovernmental agreement with Beijing on its Western Siberian gas are limited. Without
the supply of 10 bcm per year of gas from fields the European pipeline gas market, the only real
off the coast of Sakhalin Island to China via the choices are increased LNG exports, but that sec-
Far East. Gazprom has also proposed expanding tor was heavily dependent on Western technol-
the capacity of the Power of Siberia 1 by 6 bcm to ogy, equipment and financing that are no longer
44 bcm per year. But supply contracts are not in available, and greater deliveries to Turkey and
place for either of these options either. Central Asia, although these markets cannot
The real prize for Moscow is Power of Siberia take much gas.
2, not only because of the pipeline’s size but also Meanwhile, China has other options for
the fact that it would reroute gas supply from expanding its already well-diversified gas
fields on the Yamal Peninsula that are currently imports. It could take more supply from

P4 www. NEWSBASE .com Week 12 24•March•2023