Gazprom confident of $400bn Chinese gas supply

6 Jul 2017   China, Russia

Snaking across the forests, swamps and permafrost of eastern Siberia, Gazprom’s 3,000km-long pipeline is inching its way to the Chinese border to seal a $400bn gas pact that will bind together the world’s largest energy exporter and consumer.  The Power of Siberia gas pipeline, the first to connect Russia and China, will start pumping in December 2019, Gazprom said on Tuesday, paving the way for a 30-year supply agreement of more than 1.15tn cubic metres of gas for the Kremlin-controlled export monopoly.  “Gazprom, like our Chinese partners, is carrying the project out strictly on schedule, and I can even say ahead of schedule,” says chief executive Alexei Miller. “An agreement was signed today between Gazprom and [China National Petroleum Corporation] on the date to start supplying gas along the Power of Siberia pipeline. This is December 20 2019.”  Mr Miller’s affirmation is important. The project, which will cost Gazprom more than $55bn just to build the necessary infrastructure to get the gas flowing, is one of the most critical investments for Russia’s energy sector, which has targeted a long-term strategic supply link with China to match its market penetration in Europe.  “It is hugely important for both. For Gazprom, it basically opens up a huge, rapidly growing market. And more importantly, it allows them to monetise gasfields that otherwise would be left untouched,” says Kateryna Filippenko, senior research analyst at energy consultancy Wood Mackenzie. “For China, it provides stable, relatively cheap supply in the long term.”  Exports accounted for three-quarters of Gazprom’s revenues from gas sales last year, as the company ramped up output to offset a slide in prices. Gazprom supplies about a third of Europe’s gas, and plans new pipelines across the Baltic and Black seas to help defend that market share. But Power of Siberia gives it access to a vast new market. It is forecast to account for more than 12 per cent of a Chinese gas market that Mr Miller expects to reach 300bn cubic metres in the next few years.

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