Power of Siberia to shift Russia’s energy focus to East

Power of Siberia to shift Russia’s energy focus to East Photo: kremlin.ru

Russia is on the threshold of launching two important energy projects, the Nord Stream 2 and Power of Siberia gas pipelines. The latter, aimed to meet China’s growing demand, is also likely to give Russia an advantage in gas negotiations with European countries.

The Power of Siberia gas pipeline is expected to change global energy calculus, considers Bloomberg, pointing out that Russia is pivoting its energy business to the East. For Moscow, the immense pipeline is a way to reduce Russia’s dependence on European gas markets and tap into the fast-growing economies of Asia. As for China, it will receive a vital new source of energy supply, as the republic’s domestic energy production can’t keep up with demand.

In 2014, Russia’s Gazprom PJSC signed its biggest ever contract, a $400-billion deal to supply 38 billion cubic metres of gas annually for 30 years to China National Petroleum Corp. The 3,000-km Russian part of the line built by Gazprom runs from Siberia to the city of Blagoveshchensk near the Chinese border to connect with another gas line in China, which will eventually stretch 3,370 kilometres south to Shanghai. The pipeline was filled with gas in October, while the official launch is scheduled for 2 December, when the presidents of Russia and China are expected to appear in a joint video link to mark the occasion.

President of Russia Vladimir Putin and President of China Xi Jinping are expected to appear in a joint video link to mark the official launch of the pipeline on 2 December. Photo: kremlin.ru

As for pricing, President Putin has promised to apply the system used by European buyers, with gas price linked to oil prices. Earlier, Russian officials mentioned $360 per thousand cubic metres as the contract’s base price, which was close to the level of Gazprom’s contract with Germany. According to PetroChina, the cost of gas supplied via the new pipeline will be competitive with deliveries from Central Asia.

Initially, Gazprom plans to deliver 10 million cubic metres a day. The Power of Siberia is meant to reach its peak capacity by 2025 and may be eventually expanded to the west. The launch of the pipeline gives Russia an advantage in talks over gas contracts with European countries, as Russia acquires the ability to ship its output to the east instead. Currently, Russian gas is mainly supplied to the West, largely through pipelines in Ukraine but also via tanker in the form of liquefied natural gas. Meanwhile, Russia’s vast untapped reserves of gas in the country’s Far East are closer to China than to Europe. Moscow and Beijing are already talking about a second link that would serve the industrial areas on China’s east coast. China’s gas consumption has increased by 33% in the last two years, according to the International Energy Agency, after the government forced millions of factories and homes to switch away from coal to gas to fight smog and reduce carbon dioxide emissions.

By Anna Litvina