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In July, Gazprom and China National Petroleum Corporation (CNPC) announced first gas supplies via the Power of Siberia pipeline for 20 December 2019. The 38-bcm project is costly, with estimated total investment of almost US$60 billion, including upstream spend. Originally, Gazprom expected a US$25 billion prepayment from CNPC for pipeline construction.
However, this arrangement was later cancelled, and the pipeline is now solely financed by Gazprom. The raft of other projects starting up between 2019 and 2021, tax increases and low gas prices are putting a strain on the company's finances, creating risks for the Power of Siberia.
The project spend is not the only difficulty for Gazprom. The Russian fields planned to supply volumes into China are technically challenging and in remote locations. At around 3,000 km, Power of Siberia will be one of the longest pipelines ever constructed.
Ongoing work must be accelerated if the announced start date is to be met. Any delays to the pipeline will be welcome news to LNG suppliers, which are eager to sell gas to China.
Research Analyst, Asia Pacific Gas and LNG
Lynn is our Asia Pacific gas and LNG analyst, based in Beijing.
Meanwhile, the market case for CNPC is also difficult. China will need Russian gas eventually, but starting early in the previously agreed 2019-2021 window isn't backed by fundamentals.
Domestic gas is performing well. LNG is expected to be abundant and cheap. Russian gas will need to be cost-competitive with its alternatives. Complicating matters, China is in the process of liberalising its gas market. Increasing competition could make marketing Power of Siberia volumes to end users more challenging for CNPC.
Still, it remains an important deal. It consolidates Russia's pivot towards Asia and constitutes an integral part of China’s Belt and Road initiative. However, continued political support will be necessary, if the project is to deliver at the agreed time.
Overview of the proposed Power of Siberia pipeline network
With a 2019 start up planned, there is uncertainty around how this will affect China's LNG and pipeline gas mix, particularly around the winter demand peak
The Power of Siberia gas pipeline lies at the heart of Gazprom's Eastern Gas Programme. The programme aims to develop an integrated gas production, transportation and supply system in East Siberia and the Russian Far East by predominantly targeting gas exports to China. The pipeline will receive gas from the giant Chayandinskoye and Kovyktinskoye fields in East Siberia.Gazprom started construction of Power of Siberia on 1 September 2014. The pipeline's planned capacity is 4,644 ...
Russian gas to China: 2019 start threatens China’s LNG import growth
Gazprom and CNPC announced they would start gas supplies via the yet-to-be-built Power of Siberia pipeline on 20 December 2019. This is early in the previously agreed 2019-2021 start-up window. The gas supply deal is significant in balancing China’s long-term gas supply and demand. However, Russian gas exports will face challenges from cheap China domestic supplies in the near term. Given competition from domestic gas, we think initial volumes could be small, accommodating seasonal demand swings in China’s northern markets. Potential for piped gas supply could discourage China's requirement for LNG. The earlier start-up and ramp-up of Russian gas exports could partially cause China’s LNG demand growth to slow after 2020.
This report contains:
russian gas to china 2019 start threatens chinas lng import growth .pdf
China's gas demand has gained firmer growth prospects. Admittedly, promoting gas becomes more challenging amid severe overcapacity in the coal and power markets, but latest energy policies confirm China's determination to divert away from coal. Gas is seen by policymakers as a realistic choice and an integral part in a cleaner energy structure. In this update, we've further revised up demand in 2020-2030 compared with our H2 2016 outlook, based on expected policy support to gas and improved fuel economics. By 2035, China gas demand will be treble the 2016 levels.