Gazprom completes 83% of the Power of Siberia

24 May 2018, Week 20, Issue 694

Russia’s Gazprom has completed construction of more than 83% of the Power of Siberia pipeline that will allow it to expand sales of natural gas to China, the company said on May 17.

“As of today, a total of 1,791 km of the pipeline, or 83% of the linear section of the pipeline from the Chayandinskoye field to the Chinese border in the Amur Region, has been constructed,” the Russian gas giant said. “This year the main part of construction and installation works on this section will be completed.”

The Power of Siberia gas trunk line will transport gas from production huts in Irkutsk and Yakutia to consumers in Russia’s Far East and then on to China. Gas shipments are expected to start at the end of next year.

Gazprom intends to invest nearly 218 billion rubles (US$3.54 billion) in the project this year, having already spent 158.8 billion rubles (US$2.58 billion) in 2017.

The pipeline is anticipated to be instrumental in helping China avoid the crippling gas shortages it experienced last winter as a spell of unseasonably cold weather coincided with a government push to switch the heating systems of millions of homes in northern China from coal to gas.

China National Petroleum Corp. (CNPC) will buy the gas under a sales and purchase agreement (SPA) it signed with Gazprom in May 2014. The deal calls for Gazprom to supply it with 38 bcm per year of gas over a 30-year period starting in December 2019.

Gazprom revealed in late April that CNPC would not make any advance payments for any gas supplies.

Talks intended to iron out the details of a second planned link – the Altai pipeline, which would source gas from Western Siberian gas fields – have reportedly made little progress.

Gazprom has become the subject of fresh controversy this month after Russia’s Sberbank wrote a report that claimed it had handed US$93.4 billion worth of construction contracts related to gas export pipelines including Power of Siberia, Nord Stream 2 and Turkish Stream to companies run by personal friends of Russian President Vladimir Putin.

The Power of Siberia project will require the construction of additional extraction, refining and transportation facilities costing up to US$40 billion – work that will be carried out by companies affiliated with Kremlin insider Gennady Timchenko – the bank said.

Given that investing in pipelines does not yield high margins, “we find the decisions of Gazprom very clear once we assume that the company is managed in the interests of its contractors, and not for extracting commercial profits,” the report argued.

Edited by

Andrew Kemp

Editor

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