"Gazprom" is pushing ahead with the new "Power of Siberia-2" gas pipeline project to China - FT
Kyiv • UNN
Russian "Gazprom" is developing detailed design documentation for the "Power of Siberia-2" gas pipeline to China, which will transport 50 billion cubic meters of gas per year. The cost of design work can reach 5-10% of the total budget, which is estimated at more than 30 billion dollars.
Russian energy giant Gazprom continues to implement plans for the construction of a new gas pipeline to China, developing expensive detailed project documentation, which is a sign that Moscow believes in the resumption of the long-delayed project, the Financial Times reports, writes UNN.
Details
"Power of Siberia-2", which will transport 50 billion cubic meters of gas per year, is "Russia's only real hope to compensate for some of the lost exports to Europe," the publication writes.
Russia and China signed an agreement on "Power of Siberia-2" in 2014, but it dragged on for several years before becoming relevant after Russia's full-scale invasion of Ukraine in 2022, the publication notes.
In September, Putin and Chinese President Xi Jinping signed a "memorandum on construction." After that, Gazprom engineers began work on the technical design, three sources familiar with the project's preparation told the Financial Times.
Engineers were likely working on the preliminary design phase, which involves creating "hundreds of volumes" of technical documentation, said Sergey Vakulenko, a senior fellow at the Carnegie Endowment for International Peace and former head of strategy at Gazprom Neft, Gazprom's oil division.
Such studies were expensive and, according to Vakulenko, could account for 5% of the total cost of a project of this scale. A senior official at a Russian energy company told the FT that the cost could reach 10% of the total cost.
"Such expenses are unusual unless there is firm confidence that the money is being spent effectively and the investments are safe," the executive said, referring to the design phase.
The total project budget is not disclosed. Vakulenko and Ronald Smith, founder of Emerging Markets Oil and Gas Consulting Partners and a long-time analyst of the Russian energy market, estimate the upper limit at more than $30 billion, but both note that the final amount could be lower. Other reports have mentioned a much smaller amount.
Chinese officials have made almost no comments on the pipeline project, despite Xi Jinping signing the latest memorandum, which has raised doubts among some observers about its actual progress.
There are no guarantees yet. According to a Russian energy consultant, one of the reasons for Gazprom's ongoing pressure was that the company had design departments that "either needed to be closed or given something to work on." "What else?" he asked.
"Gazprom clearly believed that China would eventually give in," he said, adding: "For them [the Chinese], it will still be the cheapest gas - that's why Gazprom is ready to invest serious money, and I don't think they are very wrong."
Analysts at S&P Global Energy believe that supplies to China via this pipeline are likely to begin in the early 2030s.
Throughout the long history of the project, Russia has developed documentation for various sections of the pipeline. However, the new projects will be the first comprehensive engineering study for the entire line. The project is expected to stretch for 6,700 km: 2,700 km across Russia, starting from the gas fields in the north of Yamal, and about 1,000 km across Mongolia with a final destination in China. Gazprom CEO Alexey Miller confirmed the start of work on a small section of the pipeline, 410 km long, in Siberia, which Moscow decided to build regardless of China's decision as part of internal efforts to improve gas supply in the region.
"Gazprom is building sections of the pipeline that could eventually become part of 'Power of Siberia-2' if it is implemented, but will serve local markets if it is not," Smith said.
In September, Miller met with the head of the United Metallurgical Company, a leading Russian pipe manufacturer, to discuss "the supply of pipes for major investment projects."
However, the start of work does not mean that an agreement on "Power of Siberia-2" has been reached on such key parameters as price and supply conditions, the publication notes.
These issues remain a constant stumbling block, but the pipeline is increasingly becoming vital for Gazprom and the Russian government, the publication writes. The Yamal fields, where "Power of Siberia-2" begins, previously supplied Europe, and the new pipeline, the publication notes, is their only chance to compensate for lost revenues. But even if "Power of Siberia-2" is launched, the total volume of Russian pipeline exports to China will still be only about half the volume of gas supplies to Europe before the full-scale war, the publication points out.
At the same time, the publication writes, China is preparing its bond market to open its doors to Russian energy companies. In September, Chinese rating agency CSCI Pengyuan gave Gazprom, along with other Russian energy companies, an "AA" rating, which opened the way for them to issue debt.
Nevertheless, Beijing's approach has been cautious. When Russian media in September exploded with reports of a "historic agreement" on "Power of Siberia-2," the agreement was barely mentioned in Chinese media.