Gas pipelines without contract and route: Gazprom is proactive

Gazprom plans and builds export gas pipelines without a clear and well-defined future. What do they expect in the Russian holding company? According to Interfax, Gazprom is preparing construction of a branch from the Sakhalin-Khabarovsk-Vladivostok gas pipeline for supplying gas to China. At the same time, a contract between the Russian holding company and the Chinese CNPC has not yet been signed.

"In order to increase the capacity of the Sakhalin-Khabarovsk-Vladivostok gas pipeline system to supply gas to potential customers in the Far East of Russia and China, we are now preparing construction of about 353 km section from Komsomolsk-on-Amur to Khabarovsk and we plan to inaugurate it in 2020," Interfax quotes the memorandum of the new issue of Gazprom Eurobonds. The agency notes that the pipeline was planned to be commissioned in 2019, and last December Gazprom and CNPC signed an agreement on the basic terms of natural gas supplies from the Russian Far East to China. The parties were going to sign a contract in 2018, but in the February memorandum Gazprom is more cautious in statements: "The parties are continuing preparations for signing the contract."

“Gazprom is to mention its plans in the documents on Eurobonds’ issue, but this does not mean that the gas pipeline to China will be built," Vasily Tanurkov, the deputy director of the ACRA analytical credit rating agency says. The expert notes that the program of the Russian company says nothing about such plans in the near future. "Indeed, conversations have been taking place for 2-3 years, but the Chinese market is very different from, for example, the European one. In the EU, one can always come to terms with one or three countries. There are several routes to Europe for the second branch of the Turkish Stream which is under construction, besides, it can sell gas to the Turks or fill the Southern Gas Corridor, if necessary. In China, this is impossible: only one agreement can be signed, and there is no point in building anything without it," notes Vasily Tanurkov.

Igor Yushkov, senior analyst at the National Energy Security Fund, believes that Gazprom bluffs and provokes an artificial frenzy between China and Japan. The latter is considering the possibility of participating in the third phase of the Sakhalin LNG project. "For China, such supplies would be beneficial. The gas will be immediately entering the consumption region, unlike by the western route (The Power of Siberia-2, former Altai - EADaily). But the Chinese will be pressing down regarding the price. And it would be more profitable for Gazprom to build an LNG terminal, which would remove the limitation on the number of future consumers," the expert says, also pointing out that it is not so easy with a resource base for gas supplies from the Far East as well.

"Gazprom counted on the development of the Yuzhno-Kirinskoye field, which would give 15 billion cubic meters of gas per year. However, due to US sanctions, Gazprom will not be able, as planned, to develop the field with the help of underwater complexes from the US; its arrangement is postponed for an indefinite period. That's why Gazprom has only the Kirinsky deposit, which will allow producing additional 4-5 billion cubic meters a year," the expert says. According to him, the second branch of Turkish Stream is another story: "There are resources, contracts and it is about changing the delivery route, which is not defined across Europe and there is no permission for it." "Even here, the situation with Chinese is more complicated. You need to know for sure that they will buy gas, "says Igor Yushkov.

We recall that unlike the Chinese branch from the Sakhalin-Khabarovsk-Vladivostok gas pipeline, the construction of the second branch of the Turkish Stream is underway, but the route through Europe has not yet been determined. And Russian Foreign Minister Sergey Lavrov said in mid-January that the project would be extended to the EU countries only with the "iron-clad guarantees" of the European Commission that it would not be disrupted. As EADaily already reported, now Gazprom is considering the extension of the second branch of the Turkish Stream through Bulgaria, Serbia and Hungary to Austria and concluded agreements with some countries on the construction of the gas pipeline and the gas purchasing.

As for China, now Gazprom is constructing the Power of Siberia gas pipeline to supply Russian gas to China next year. Its design capacity is 38 billion cubic meters, and Gazprom signed a contract with the Chinese CNPC for its annual delivery for 30 years. Earlier, EADaily wrote that China is suspending negotiations with Russia of new gas supply routes, since it is revising its energy balance.