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Russia’s Gazprom Moves Forward With New Mega Pipeline
The Russian gas export monopoly Gazprom has hit the wall with new European projects – Nord Stream 2 will be finished at some point in the second half of 2021, the exact route of TurkStream’s second line remains veiled in ambiguity and no other major gas importer voiced their interest in carrying out a new project. Thus, the only remaining prospect for growth lies in Eastern Asia and primarily China. Apart from a tangible gas market saturation in Europe, there are two main premises for a second-phase Gazprom expansion into China: its largely untapped Eastern Siberian gas reserves that would be very costly to move all across Russia onto European markets and the competitiveness of Russian pipeline gas on the Chinese market.
Gazprom’s current China-bound project, the 38 BCm per year Power of Siberia (PoS) pipeline, started up in December 2019. Surprisingly, the Russian firm halted gas exports via PoS mid-March for a (previously non-indicated) two-week maintenance which turned out to be an elegant way of circumventing the massive demand drop in China. Even with another round of maintenance announced for autumn, Gazprom should be able to meet its export target for 2020 – 5 BCm, rising steadily to 10 BCm per year in 2021 and 15 BCm in 2022. By 2025 Power of Siberia should reach its nominal capacity and it is the next step after that currently exercises the minds of Russian policy makers and gas traders alike.
The contours of the next major project have been emerging for some time already – the idea to construct Power of Siberia-2 (PoS-2) was flaunted already in the early 2010s, its purpose being of meeting the gas requirements of Western Chinese provinces via Mongolia. This late March Gazprom’s request of conducting a feasibility study for PoS-2 has found President Putin’s approval. The projected pipeline would have a throughput capacity of 50 BCm per year and would be traversing Russia’s Altay region before crossing over to Mongolia and Western China. The first thing that struck market observers was that at some point in early 2020 the capacity of Power of Siberia-2 was upgraded from a preliminary estimate of 30 BCm per year to an officially presented volume of 50 BCm per year.
The framework for Power of Siberia-2 (also known as the Altai pipeline) was laid down in 2015 when Gazprom and the Chinese state-owned company CNPC signed a preliminary gas supply deal, without specifying the technicalities of pricing. Given that Pos-1 pricing talks took a decade to conclude, the tardiness of PoS-2 negotiations is hardly surprising. Yet at the same time Russian authorities are betting heavily on it happening – the recently issued Energy strategy-2035 sees pipeline gas exports reaching 300 BCm per year by 2035, of which 80 BCm per year will go to China, with European pipeline exports effectively stalling for the next decade and half. It has to be noted that the Energy Strategy also surmises a “pessimistic scenario”, whereby Gazprom’s gas exports increase from 220 BCm in the base year of 2018 to 255 BCm per year in 2035, meaning a slight decline in European demand and Power of Siberia-1 remaining the only China-bound gas conduit, with no Pos-2 construction taking place. Gazprom needs Power of Siberia-2 for many reasons. First of all, its immense 2P reserve base of 24.3 TCm (which keeps on increasing with time by 0.1-0.2 TCm in the last couple of years) compels it to act upon it whilst Eurasian economies still perceive natural gas as a bridging energy source and do not penalize its utilization. Second, China is the only easy-to-access market outlet whose demand for natural gas has still not peaked – once China reaches that stage, there remain only more adventurous and technologically complex variants (eg.: constructing a pipeline to South Korea, subsea or transiting North Korea). Thirdly, Gazprom might dovetail Pos-2 with one of its long-time ambitions – linking the gas transmission system of Russia’s Far East to the ones in Western Siberia and Europe. Given that still only 69 percent are connected to the federal gas transmission system, this would be a politically very useful objective.
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https://oilprice.com/Energy/Energy-General/Russias-Gazprom-Moves-Forward-With-New-Mega-Pipeline.html
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