Russia Opening Giant Gas Link to China as Putin Pivots East www.bloomberg.com
The world’s biggest natural gas exporter and one of the globe’s top consumers of the fuel cement their energy cooperation on Monday with the launch of Russia’s giant Power of Siberia pipeline to northern China.
The 3,000-kilometer link, which has become a symbol of President Vladimir Putin’s pivot to the fast-growing economies of Asia as relations deteriorate with the West, begins shipping gas from Russia’s enormous reserves in its eastern regions to the border. It will then link up with China’s own network to supply the fuel as far as the eastern seaboard and help satisfy the nation’s vast and growing energy needs.
Gazprom PJSC, Russia’s biggest gas producer, signed the $400 billion contract to supply as much as 38 billion cubic meters of gas annually for 30 years with China National Petroleum Corporation in 2014, after more than a decade of talks. It’s Gazprom’s biggest contract ever.
The Russian company plans to start with deliveries of 10 million cubic meters a day and aims to reach peak capacity by 2025. Gazprom’s minimum exports to China via the pipeline will be 5 billion cubic meters in 2020, 10 billion cubic meters in 2021 and 15 billion cubic meters in 2022, according to the company.
Gazprom hasn’t disclosed the price of the gas, but Putin has said it’ll be linked to oil prices, similar to the formula for European consumers. While Russia will have to compete with seaborne supplies of liquefied natural gas from producers such as Qatar and Australia, the expectation is that growth in China’s energy needs will require more pipeline and LNG capacity, to the benefit of other Russian firms such as Novatek PJSC, which is developing LNG on the Yamal peninsula in the Kara Sea.
Gas consumption in Asia’s biggest economy has surged in recent years as the government pressures homes and factories to use it in place of coal to combat air pollution. Imports reached 43% of the total gas supply in 2018, with about two-fifths of that arriving via pipeline from Central Asia and Myanmar, with the rest sourced as seaborne LNG.
Russia and China are already talking about a second link, known as Power of Siberia 2, that would connect through the countries’ western border between Mongolia and Kazakhstan.
— With assistance by Dina Khrennikova, and Dan Murtaugh