Page 69 - bne_July 2024_20240709

bne July 2024
Opinion 69
Gazprom and Ukraine’s Naftogaz to transit Russian gas will end this year and Naftogaz has made clear it will not be renewed. But the company has said it will carry Russian gas on behalf of customers in neighbouring Slovakia, etc, so a similar volume to last year (circa 14.65bcm) should continue.
Longer term, and completely depending on whether relations between Russia and the EU return to some form of pragmatism after the conflict ends, it is possible that the undamaged NS1 pipe could be used to carry approximately 20bcm of gas to Germany. But there is no realistic prospect of the three damaged pipes ever being used. The gas flow to Belarus and the Caucasus (approx. 27bcm) should also continue with Belarus taking most of it. Turkey has said it intends to diversify future gas imports, e.g. using more US LNG, but it should continue to take approximately 25bcm from Russia, via Blue Stream and Turkish Stream 1 (TS1).
China is the biggest medium-term target for Moscow. Last year, Russia exported approximately 25bcm to China via the Power of Siberia 1 (PoS1) pipeline. DPM Novak said that the full capacity of the route – 38bcm – should be reached by mid next year.
Therefore, for 2024 and 2025 Russia’s natural gas exports to Europe should be 45bcm; to CIS states the volume should be 27bcm; to Turkey it should be 25bcm; and to China, a total of 38bcm. That is a total of 135bcm exported by pipeline and well below the almost 204bcm exported in 2021. More importantly, there is now a much higher percentage of exports sold to countries at a significant price discount to the previous
exports to Germany and other EU states. Sales to Belarus and the other CIS states are at less than half the EU price and the sales to China will be at 75% of the EU export price in 2025. It means the monetary value of exports will be hit much harder than the volume decline.
New markets
So, where does Moscow hope to find the new export markets? Some are known and others are in the “hoped-for” category. In the former category are additional routes to China and sales to Kazakhstan and Uzbekistan. In the latter is India.
In November 2023 Gazprom and the Chinese energy company CPNC signed a contract to build new, and a relatively short gas pipeline in the Far East. It will have a capacity of 10bcm and
is planned to be operational by late 2027. In addition, it has recently been announced that Russia and China are exploring the possibility of upgrading the existing network in Kazakhstan to carry an additional 35bcm of Russian gas to China.
If the Kazakh transit route is agreed, then the Power of Siberia 2 (PoS2) will, at least, be further delayed. The 2,600km project, which has been under discussion between Moscow and Beijing for many years, has a planned capacity of 55bcm. Russian officials continue to say that a deal to commence the project is close but Chinese officials conspicuously remain quiet. Very likely the sticking points are the gas price (China will hold out for a big multi-year discount) and the construction costs.
Russia is also now focusing on both Kazakhstan and Uzbekistan as both countries are short of power generating capacity and
Moscow is on the hunt for new gas markets since it lost Europe. China and Central Asia are in easy reach and deals are already being done, but in the long-term India is the big prize. / bne IntelliNews
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