Sep 17, 2022
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Russian gas goes to the East – and this is a forced reality

Russian gas goes to the East - and this is a forced reality

Photo: Kirill Kukhmar/TASS

The Power of Siberia-2 gas pipeline, designed to supply gas to China, can actually replace Russia’s Nord Stream-2, the Deputy Prime Minister is convinced Alexander Novak.

Earlier, he said that the final agreement with China on the “Power of Siberia-2” is expected in the near future, the volume of supplies will be 50 billion cubic meters of gas annually. In turn, Gazprom noted that China is increasing requests for fuel supplies through the specified pipeline, in September they regularly go beyond daily contracts.

It should be noted that the Power of Siberia-2 has been talked about for a long time. Given the growing needs of the Chinese economy, especially today, during the recovery period after the pandemic, the laying of a second gas pipeline looks logical.

However, some Russian media have previously argued that the need for a new pipe is due to the fact that the volume of gas production at one of the largest fields in Russia – Chayandinskoye, from which the Power of Siberia-1 is filled – is not enough to fully fill it. This was allegedly caused by the haste with exploration, systematic negligence and criminal forgery committed by the company’s leaders, regular ignoring of technological violations, and even the consequences of import substitution.

Be that as it may, a new round of the sanctions war, during which Europe has practically buried the ready-made Nord Stream 2 and is trying to abandon Russian gas altogether, raises the question of reorienting to the East and increasing capacities.

But will China become a full-fledged replacement for Europe, and Power of Siberia-2 for Nord Stream-2?

“As far as I know, there are no serious restrictions in the resource base for supplies for Power of Siberia-1,” says Deputy Director of the National Energy Security Fund Aleksey Grivach.

– Deliveries are in excess of contractual parameters. The increase in volumes is going according to plan, with access to the contract volume in 2024. Soon, the Kovykta field in the Irkutsk region will be connected to the system for this purpose. The construction of Power of Siberia-2 is a separate project to diversify exports from Gazprom’s base fields in Western Siberia, which until then worked only for the domestic market in the western part of the country and for export to Europe, Turkey and the former Soviet republics. Over time, Power of Siberia and Power of Siberia-2 will be merged, which will form a single gas supply system throughout the country (with the exception of some geographically isolated systems) and increase the reliability and flexibility of supplies both to Russian consumers in the east of Russia and for export to China or other Asian countries.

“SP”: The Power of Siberia-2 has been talked about for a long time. But it was all just talk. Will the current situation with a decrease in supplies to Europe push the implementation of the project?

— This is not only talk, but a complex process of negotiations and designing various sections of the future gas pipeline. The Russian President said that the main parameters of the agreement with China, including the price, had already been agreed upon. That is, the negotiation process has reached the finish line. The Mongolian section is already being designed, but concrete decisions can only be made after the finalization of the contract with the buyer.

The situation with Europe, of course, stimulates the Russian side to speed up, but excessive haste here is also not in our interests. Solutions must be commercially attractive, as they involve large investments and decades of contractual relationships.

“SP”: Can Power of Siberia 2 replace Nord Stream 2 in terms of pumping volumes and profits?

– In a way, yes. The current parameters of SS-2 (50 billion cubic meters per year) are comparable to the capacities of SP-2 (about 60 billion cubic meters per year). But, firstly, the gas pipeline in the direction of China has growth potential. Secondly, SP-2 has an immediate potential backup, namely the LNG complex in Ust-Luga, which was initially considered as an additional one.

“SP”: Do you think China’s demands are really growing?

— China has been increasing its gas consumption at an incredible pace for 10 years. Volumes increased almost 4 times, up to 360 billion cubic meters. And further growth is expected by another 300 billion cubic meters in the next 10-15 years.

“SP”: Who will finance the construction?

– The Chinese part – the Chinese. The Russian and probably the Mongolian part of the pipeline will be built by Gazprom at its own expense. But in fact, this construction will be financed by European consumers, who, due to the short-sighted actions of their politicians, pay crazy prices for gas and generate record revenues for Gazprom.

“The stories that there is not enough gas in the Chayandinskoye and Kovyktinskoye fields, which are the resource base for SS-1, were an element of corporate struggle,” I am sure leading analyst of the National Energy Security Fund, expert of the Financial University under the Government of the Russian Federation Igor Yushkov.

— Those publications were informational attacks on Gazprom. It is hard to imagine that all Soviet and then Russian geologists were mistaken for decades, believing that the reserves of these two fields are huge. As far as we understand, during the development of the Chayandinskoye field, there was a problem when drilling one or more wells. They had to be redone. But this does not create problems with production, these are just additional costs. “Power of Siberia” in 2021 and 2022 operates in excess of the design capacity, which was determined for each year. There are no supply problems. It should be taken into account that at the level of 38 billion cubic meters. m. The gas pipeline will go out until 2024. This is not a problem, this is the original project.

Of course, it is extremely important for Russia now to implement the Power of Siberia-2. Because in the event of a cessation of gas supplies to Europe, gas production at the West Siberian fields and the Yamal fields will have to be reduced by 150 billion cubic meters. m. per year. Initially, SS-2 was considered as a project to diversify gas exports from West Siberian fields. In the Pur-Tazovsky district of the YaNAO, there are unclaimed fields of Gazprom. Since he took production further north – to Yamal, the more southern fields – already developed and ready for exploitation – were stopped. Gazprom wants to monetize gas from such fields with the help of SS-2. Now, however, SS-2 should become precisely a turn to the East, so that we can retain at least part of the gas exports that used to go to Europe.

But China is a tough negotiator and tries to get extremely low prices from us. However, he needs to take into account that Europe is replacing Russian gas by increasing LNG imports, which go to Europe from Asia. Therefore, China will either have to fight for expensive LNG, or agree with Gazprom on an acceptable price for everyone.

“SP”: Does China need so much gas? Does he consume alone, like the whole of Europe?

China needs gas. Its economy is growing, even if there are problems in 2022. Therefore, he needs more and more energy. Even ordinary Chinese suffer from coal generation. Therefore, we should expect the demand for gas in China to grow.

“SP”: Can we talk about the final turn to the East? Putin said that the SP-2 would still come in handy. Will it fit?

– The turn to the East became a forced move. The EU introduced a ban on the import of Russian coal, a ban on the import of Russian oil and petroleum products. In these segments, market restructuring is inevitable. We are moving to India, China and other Asian countries. For the time being, there will be fewer such events in the gas region. Redirecting gas to other markets is technically more difficult. We need to build gas pipelines or LNG plants. In addition, the Europeans have not yet officially banned the import of gas from Russia.

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