CNPC, Gazprom clinch deal on Power of Siberia section

08 September 2016, Week 35 Issue 609

China National Petroleum Corp. (CNPC) and Gazprom have signed an engineering, procurement and construction (EPC) contract for the underwater portion of the Power of Siberia pipeline, the Russian gas giant announced on September 4.

The agreement was signed by CNPC chairman Wang Yilin and Gazprom CEO Alexei Miller on the sidelines of the G20 summit in Hangzhou last week.

The submarine section of the line’s eastern route will pump Russian gas under the Amur River, which represents the border between Russia’s far eastern territories and northeastern China. CNPC subsidiary China Petroleum Pipeline will be the contractor for the project, which will be completed using shield tunnelling methods, Gazprom said.

From 2019, the Power of Siberia’s eastern route will deliver gas produced at Gazprom’s massive Kovykta and Chayanda fields in the Russian regions of Irkutsk and Yakutia respectively. In 2015, the two state-owned firms signed an initial agreement in Beijing to construct the cross-border section of the eastern route, including the underwater section via the Amur River.

A year earlier, Russian President Vladimir Putin and Chinese President Xi Jinping struck a historic sales and purchase agreement for Russian gas deliveries to China. The deal called for 38 bcm per year of Russian gas to be delivered via the Power of Siberia line over 30 years. The contract was valued at around US$400 billion over its lifetime based on a sales price of US$350-390 per 1,000 cubic metres. The accord was Russia’s ever largest gas supply deal, cementing closer energy relations between Moscow and Beijing.

In 2014, a preliminary agreement was also signed to construct the Power of Siberia’s western route, which would deliver an additional 30 bcm per year of gas from Western Siberia. A CNPC source told Russian news agency Interfax earlier this year that a contract for the western route had yet to be signed, as the two sides cannot agree on terms. The source said CNPC favoured the joint production and sale of gas as well as the joint construction and operation of the pipeline.

Gazprom, however, has concerns that as a result of heavy Chinese state subsidies for gas consumers, the price of Russian gas would be set too low. The Russian giant instead wants to sell the gas to CNPC at the Russian-Chinese border.

Edited by

Andrew Kemp

Editor

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