Why the “Power of Siberia” is losing importance to China

By | August 21, 2020
Why the

Gazprom is planning new problems, this time on the east. China, which until a few years ago was seen as an alternative to the European market, is actively increasing its own production and import of LNG. At the same time, the Russian competitor in the person of Novatek is pressing the domestic monopolist.

Last year, the highly publicized Power of Siberia gas pipeline was unveiled, which was to supply China with 38 billion cubic meters of “blue fuel” as it entered the project capacity. Its main markets are north, east, and northeast China. The cost of the project has gradually increased from 800 billion rubles to 1.1 trillion rubles. The ceremonial launch took place on December 2, 2019.

However, a few months ago there was a serious scandal. The press got information from a “secret report” that serious mistakes were made during exploration and subsequent drilling. Because of this, the real reserves of the Chayandin field were significantly less than projected, dozens of wells are unable to reach the project level, some are just “dry”. If these data are correct, Gazprom simply fails to meet contractual obligations of $400 billion to the discerning Chinese.

Indirect confirmation of this unfunny information can be considered the fact that the people responsible for the development of the Chayandin field were dismissed from the corporation, and the pipeline is really only partially filled. In addition, without waiting for the signing of the contract with Beijing, Gazprom hastily began design and exploration work on the “Power of Siberia-2” gas pipeline, which is to operate well-researched fields of Western Siberia. It is believed that a jumper could be built between the two “Forces” that will compensate for deliveries on the first pipeline.

All this is very sad, but only confirms doubts in the professional level of some highly paid top managers of domestic state corporations. The “secret report” stated that the head of Gazprom, Alexei Miller, was aware of the problems, but set a task to enter the Chinese market at all costs. As you can see, now this quick decision leaves the country sideways.
As for the position of the monopolist in China, they are gradually weakening.

First, China is actively increasing lng imports, which are cheaper today than ever. For example, the receiving terminal of zhoushan is working to increase its capacity threefold, from it in the direction of the city of Ningbo is built underwater gas pipeline Yongzhou length of 81 km. By the way, in the LNG market, the state-owned Gazprom actively squeezes the Russian private Novatek of Mr. Mikelson with its Yamal LNG projects and promising Arctic LNG 2.

Secondly, Beijing is just as active in developing its own gas reserves. By the way, the reserves of shale gas celestial in the first place in the world, on methane coal seams (MUP) – in the third place. The main difficulty is that Chinese shale is difficult to recover, and its development requires the most advanced technologies. China strongly stimulates the development of its own resources: the tax on the extraction of “shale” is reduced by 30%, the state subsidy program has been introduced. Not relying only on their own forces, the Chinese allowed foreign companies to develop.

All this has already yielded a serious result. By the end of the year, PetroChina plans to increase shale production to 12 billion cubic meters, and Sinopec – to 7.5 billion cubic meters. Domestic production in China is growing and by the end of 2020, according to their own estimates, could be between 181.5 and 187.5 billion cubic meters, and in just five years to this figure can be added another 54 billion. These are very impressive indicators.

Taken together, this means that Gazprom’s energy projects are gradually beginning to turn into “reserve” gas pipelines capable of securing in case of aggravation of relations with the United States and blockade of LNG supplies by sea.

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