Russia’s Gazprom to supply China via Power of Siberia pipeline

GAZPROM

Construction of Power of Siberia gas pipeline’s capacities.

Russian gas supplies to Europe are not under threat, as Power of Siberia will be using gas from new fields closer to China and the Pacific, UralSib analyst tells NE.

 


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In an effort to strengthen Russia’s foothold in the Asia-Pacific region, Gazprom is advancing plans to supply China with gas via the Power of Siberia, a pipeline that is over 90% completed, the Russian gas giant said.

In order to establish an eastern route for Russian gas exports to China, Gazprom sets up major gas production centers, the Russian gas giant said, noting that extensive efforts are underway to pre-develop the Chayandinskoye field, which serves as the basis for the Yakutia gas production centre, with 113 development wells drilled and the core process equipment being assembled. According to Gazprom, the construction readiness of the facilities required for gas production is currently at 50%.

“If they want to increase the capacity and maybe add some compressing stations and pump a larger amount, they may want to build and LNG (liquefied natural gas) plant and send out LNG cargoes, which is I understand possible and it’s under consideration even,” Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp in Moscow, told New Europe by phone on August 1. “That’s got to be the next stage and also importantly they are building this processing plant – it’s called the Amur Gas Processing Plant – and some of the products will probably be exported not only to China. So that’s also possible.”

Gazprom would have to extend the pipeline to the Pacific, probably to Vladivostok. “If they ever get to build the Vladivostok LNG plant, which I think is under consideration, then they will have to build a pipeline extension,” Kokin said.

On July 25, Gazprom said the company’s Board of Directors reviewed and approved the efforts as part of the implementation of the Power of Siberia project and the shaping of gas processing infrastructure in Russia’s Far East.

Gazprom’s ambitious investment projects in the eastern part of Russia were pivotal to the country’s sustainable social and economic development. By exploring gas reserves and creating gas transmission and processing capacities, Gazprom said the company works toward providing domestic consumers with reliable gas supplies in the long term, as well as strengthening Gazprom’s foothold in the Asia-Pacific region.

Gas from Chayandinskoye will go first into the Power of Siberia gas pipeline, a crucial link between the resource base and consumers. “By now, a total of 1,954 kilometres, or 90.5% of the linear section running from Chayandinskoye to the Chinese border in the Amur Region, is finished,” Gazprom said in a press release, explaining that the bulk of construction and installation work for this section will be completed this year. The operations scheduled for 2019 will therefore include pipeline tests, installation of power supply, communications and telemetry systems, and start-up and commissioning, Gazprom said.

Construction of a two-string crossing under the Amur River within the Power of Siberia gas pipeline is also in progress. Pipe pulling in the first tunnel was completed in July, Gazprom said, adding that another construction project, this time for the Atamanskaya compressor station, was launched near the border in late 2017. The station will maintain the required pressure during gas deliveries to China.

Prior to being fed into Power of Siberia, natural gas will undergo treatment, producing valuable petrochemical and other components. For that purpose, the Russian gas giant is building the Amur Gas Processing Plant, the largest such plant in Russia and second biggest in the world. The priority railway and river infrastructure facilities, including ones for transporting large cargo, are already in place. Construction of the plant is in full swing, as the gas processing facilities are being set up at the moment.

Gazprom is looking to the Chinese market although it is not as lucrative as the higher-paying European market. But Kokin told New Europe that the price is no longer a thorn in the side of Russia-China energy relations. “I don’t think that Gazprom sees it as a problem, at the moment. They already have the contract in place anyway. So they will have to ship at the agreed on prices so there’s not much leeway there,” Kokin said.

The UralSib analyst also noted that Russian gas supplies to Europe would not be under threat, as Power of Siberia will be using gas from new fields that probably would not have any other market than China and the Pacific just because of their location.

“In some sense, we’re talking about Gazprom 2.0. The whole of Eastern Siberia is almost a separate company operationally – it’s not really connected with Gazprom 1.0, which is mostly Western Siberia. It has shifted northwards very much to the Yamal Peninsula but it remains essentially a Western Siberian company that’s thousands of miles away from the new fields in Eastern Siberia,” Kokin said.

“So in some sense, on the level of Gazprom, obviously more shipments to China will mean a reduced percentage of shipments to Europe – just arithmetically. But the Chinese project was not so much about diversifying as about monetising the resource base in Eastern Siberia, which has been sitting there since probably the 80s,” the Uralsib analyst added. “They’re not competing, there’s no cannibalization; there’s no competition for the same source. These come from different sources,” added Kokin.

When asked about a new round of sanctions against Russia that a group of senior US senators are reportedly determined to push through in the wake of July’s meeting between US President Donald J. Trump and Russian President Vladimir Putin, which the former described as “positive”, Kokin told New Europe that the proposed embargoes would not affect the Power of Siberia pipeline.

“No, I don’t think so. Basically, there’s no one to sanction. In the sense there are no European companies that could withdraw from the project. It’s more bilateral between Russia and China. You can’t take the same route as with Nord Stream-2 where there are major European companies – international companies involved and international companies involved,” Kokin concluded.

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