Russia - Gas Exports to China
Moscow boosted its gas deliveries to China after the EU joined the anti-Russian sanctions in response to the launch of the special military operation in Ukraine. Gazprom exceeded its annual obligations for gas supplies to China in 2022 and reached a fundamentally new level of supplies from January 1, Gazprom CEO Alexey Miller said on 02 January 2023. "In 2022, regular supplies went beyond the daily contract quantities, at the request of the Chinese side, and, as a result, we exceeded our annual commitments," Miller said.
The supplies are being carried out through the Power of Siberia gas pipeline under a long term contract between Gazprom and the China National Petroleum Corporation. Operations of the pipeline started in 2019. Supplies reached 4.1 billion cubic meters of gas in 2020 and grew 2.5 times to 10.4 billion cubic meters in 2021. They will continue to expand until the pipeline reaches its target annual capacity of 38 billion cubic meters of gas by 2025.
China and Russia signed a long-awaited, 30-year agreement for natural gas worth an estimated $400 billion on May 21, 2014, securing the world's top energy user a major new source of the clean-burning fuel. The deal between Russian state-controlled company Gazprom and China National Petroleum Corp (CNPC) would see Russia supply 38 billion cubic meters (bcm) of gas to China each year for 30 years under a contract valued in excess of $400 billion. The gas would be transported along a new pipeline linking Siberian gas fields to China's main consumption centers near its coastline. Russia’s overall investment on delivering gas to China was $55 billion and China’s investment was estimated at around $22 billion according to a contract signed by the two countries in Shanghai. The contract includes a take-or-pay provision, with the first gas deliveries to China from Russia to begin in the next four to six years.
European countries’ preference for short-term contracts for gas forced them to pay through the nose as spot prices on wholesale supplies jumped over 800 percent over the year 2021. China can afford to buy greater amounts, since it has been purchasing pipeline gas through long-term contracts linked to oil prices. Observers estimated that in October 2021, China paid between $4-7 per Mmbtu for its gas even as Europeans shelled out over $20 per Mmbtu during the same period.
On 18 December 2021 Russian President Vladimir Putin and his Chinese counterpart, Xi Jinping, held a video call to discuss a range of bilateral and global issues, including the Power of Siberia 2 – a major new energy infrastructure project promising to increase Russia’s gas export capability to China by up to 50 billion cubic meters of gas per year. Putin told reporters that the pipeline’s proposed route (which includes a stretch through Mongolia), its length and other features have already been agreed upon, and that a study on feasibility will be completed soon. Putin also met with Mongolian President Ukhnaagiin Khurelsukh in Moscow on 16 December to discuss the project.
Energy industry observers told Nikkei Asia that the pipeline, which lookrd to be nearing approval, would be a win-win for both Russia and China. Beijing would receive access to much-needed gas supplies amid a global gas crunch and its shift away from coal power, while Moscow would reduce its dependence on the fickle European Union, which has complained about shortages and spiking spot prices while simultaneously dragging out the certification of Nord Stream 2 – the new gas pipeline was completed last fall with the capacity to provide up to 55 billion cubic meters in additional gas to the region.
Power of Siberia 2 would complement the existing Power of Siberia pipeline, which was commissioned in 2019, and will have a maximum capacity of up to 38 billion cubic meters of gas per year when fully up and running in the year 2024. That 2,200 km project has an estimated price tag of about $14.5 billion US, with the Power of Siberia 2 expected to cost in the neighbourhood of $10-$13.6 billion.
One important difference between the two projects is that while Power of Siberia takes its gas from fields in eastern Siberia, Power of Siberia 2 will be able to pump gas from Yamal – the massive fields in western Siberia which have provided gas to western Russia, Belarus, Ukraine and Europe for decades. Depending on the state of negotiations, Power of Siberia 2 could be built and come online as soon as 2027, with a projected full completion date expected by 2030.
Gazprom signed a second long-term contract with China's CNPC in early February 2022 for exports via the Far Eastern route. The deal stipulates increasing supplies to 48 billion cubic meters per year. Taking into account the Power of Siberia 2 gas pipeline and its continuation through Mongolia (the Soyuz Vostok pipeline), gas exports to China can be boosted by another 50 billion cubic meters per year.
Mongolia expected the start of Power of Siberia 2 gas pipeline construction from Russia to China through its territory in 2024, Mongolian Prime Minister Luvsannamsrai Oyun-Erdene told the Financial Times in an interview published on 18 July 2022. Transit fees will help to recover Mongolia's economy from the effects of the COVID-19 pandemic, according to the newspaper. Earlier, Mongolian Foreign Minister Battsetseg Batmunkh said that the construction of a gas pipeline from Russia to China through the territory of Mongolia was proceeding according to the schedule.
Russia's Gazprom and China's CNPC agreed to make payments for gas supplies in rubles and yuan in a 50/50 ratio, Russian President Vladimir Putin said on 07 September 2022. "I would like to note that yesterday Gazprom and its Chinese partners decided to switch to the ruble and the yuan in a 50/50 ratio when paying for gas," Putin said at a plenary session of the Eastern Economic Forum (EEF) in Vladivostok.
"On December 9, Gazprom set a new historical record for daily deliveries of Russian gas to China via the Power of Siberia gas pipeline. The excess of Gazprom's daily contractual obligations under the gas purchase and sale agreement amounted to 16.4%," Gazprom said 10 Decenber 2022.
Russia and China signed an intergovernmental agreement on gas supplies through the Far East route, the Russian government said on 09 February 2023. "To approve the agreement between the government of Russia and the government of China on cooperation in the field of natural gas supplies from Russia to China along the Far East route, signed in Moscow and in Beijing on January 31, 2023," the government said in a statement. According to the agreement, the total volume of supplies will grow to 48 billion cubic meters per year. Taking into account the Power of Siberia 2 gas pipeline and its continuation through Mongolia, the Soyuz Vostok pipeline, gas exports to China can be increased by another 50 billion cubic meters per year.
China may delay the construction of the Power of Siberia-2 gas pipeline, preferring the Central Asian pipeline project for gas supplies from Turkmenistan, Reuters reported 25 May 2023 citing its own sources. The readiness of the PRC to delay the construction of the "Force of Siberia-2" is also confirmed by the sources of the Financial Times.
Instead of the 50 billion cubic meter Power of Siberia-2 project, which Russia has been promoting for more than 7 years, China decided to give priority to a new gas pipeline from Turkmenistan, according to Reuters sources from among high-ranking Chinese officials and representatives of the country's oil and gas industry. Although Turkmen gas costs China 30% more than Russian gas, and negotiations on a discount with Ashgabat failed, Beijing gave the green light to the Line D project, which will import 30 billion cubic meters from Turkmenistan annually.
“Central Asian pipelines are considered a key investment in China's energy and geopolitical space. It is a supply chain with strategic value that transcends commercial aspects,” an unnamed Chinese official told Reuters. On the eve of the British newspaper Financial Times (FT) also reported that China will drag out negotiations on the construction of the Power of Siberia-2 pipeline, which will provide Russian gas supplies through Mongolia. According to the FT, Prime Minister Mikhail Mishustin's recent visit to China did not lead to the signing of a document in which Beijing would make clear commitments regarding this gas pipeline. Experts interviewed by the FT note that China is in no hurry to implement the project due to the delay in Russia's military operation in Ukraine.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
