Gazprom starts commercial pipeline gas delivery to China / News / News agency Inforos
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Gazprom starts commercial pipeline gas delivery to China

Eurasian gas transportation system is being formed

Gazprom starts commercial pipeline gas delivery to China
Context:

Russia is successfully developing pipeline infrastructure for oil and gas exports eastwards.

On November 27, state corporation Transneft completed the project of expanding the Eastern Siberia-Pacific Ocean pipeline system (ESPO), with the capacity of the pipeline's first stage to provide for pumping up to 80 million tons of raw materials per year, and the second stage capacity to increase to 50 million tons.

The pace of project implementation was much higher than planned. This solves both the export issue (there was a shortage of transport capacity in the eastern direction), and the problem of steady supplies to the oil refineries in Khabarovsk and Komsomolsk-on-Amur.

And December 2 witnessed the high-profile ceremony to launch Russian gas supplies to China: Russian President Vladimir Putin and Chinese President Xi Jinping took part in the ceremony of commissioning the Power of Siberia gas pipeline in a teleconference mode.

The agreement on the "eastern route" of Russian natural gas exports between Gazprom and the China National Petroleum Corporation (CNPC) was signed in May 2014 for a period of 30 years. The pipeline's rated capacity is 38 billion cubic meters per year. Natural gas will be transported from the Chayandinskoye field in Yakutia and the Kovyktinskoe field in the Irkutsk region. The 3000-kilometer route of the gas pipeline passes through the territory of the Irkutsk region, the Republic of Sakha and the Amur region.

The Power of Siberia is the first landmark in building Russia's Eurasian diversification gas transport model. The pipe gas market ceases to be unipolar for Gazprom, with the export of the giant's natural gas being organized both to Europe and Asia.

The launch of the Power of Siberia is a virtual milestone in the gas strategy of the Russian Federation. The strategic focus on the equality of Asian supplies as compared with the European vector may soon gradually become a priority for Gazprom. Although the Old World will certainly remain Gazprom's primary market for a long time, given the impressive new capacities of gas delivery systems to Europe – Nord Stream 2 and Turkish Stream (both to enter the design operating mode in 2020): their total pumping potential will exceed 87 billion cubic meters of gas per year.

Nevertheless, Gazprom is working on two more routes to deliver gas to China – the Power of Siberia 2 (the "Western route", formerly known as the Altai project) and the Far Eastern route.

In addition, Kazakhstan has suddenly shown interest in Russia's eastern gas pipeline projects. Which is quite unexpected, given that country's hydrocarbon status. On November 26, Kazakhstan's first Deputy Minister of Energy Mahambet Dosmukhambetov said the republic was studying the issue of joining the Power of Siberia 2 gas pipeline to gasify facilities of the East Kazakhstan region. A curious statement, but nothing more than a declaration, as the Power of Siberia 2 project is still being elaborated by Gazprom, with no signals from China of its desire to speed up substantive negotiations. Today, Gazprom's discussions with China are more focused on prospects for accomplishing the Far Eastern route, rather than on the Altai project.

But even the launch of the Power of Siberia will squeeze the competitive environment in the gas market of China. This is a serious challenge to global suppliers of liquefied natural gas (LNG). At that, in present-day Asia, demand for LNG has already weakened markedly. The decline in LNG sales is due to the circumstances of the ongoing trade war between the US and China. And the glutted Asian niche sometimes distracts the sellers to Europe. The emergence of Gazprom's pipeline gas in China will require LNG operators to reassess their business strategies. So in the concept-based sense, the Power of Siberia is a problem for global LNG producers who believe in the permanent bottomlessness of the Chinese natural gas market. Novatek's Yamal liquefied gas is no exception here – it may well refine the company's plans to commission new liquefied gas lines on Yamal and Gydan. And Gazprom itself is not in a tearing hurry to expand its Far Eastern LNG capacity, namely the Sakhalin 2 project, Russia's first liquefied gas plant, which has been successfully operating since 2009.

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