Contractors for the construction of the next sections of the Power of Siberia gas pipeline have already been identified, Gazprom Chairman of the Board Alexey Miller said on Tuesday. According to the government procurement portal, a decision on the second and third sections of the highway should be made no later than October 9.
Miller explained that this decision was made taking into account the suspension of work on the Southern Corridor system; the released forces will be directed to the Power of Siberia. The main contracts for the Southern Corridor were awarded to ZAO Stroytransgaz and Stroygazmontazh.
Yakutsk and Irkutsk gas production centers
Gas production in Yakutia (based on the Chayandinskoye field, gas reserves - 1.2 trillion cubic meters) will be developed in a single complex with production in the Irkutsk region (based on the Kovyktinskoye field, gas reserves - 1.5 trillion cubic meters), resource base which will be connected in the next step.
Gas transportation system
“Power of Siberia” will become a common gas transportation system for the Irkutsk and Yakutsk gas production centers and will transport gas from these centers through Khabarovsk to Vladivostok.
At the first stage, the main gas pipeline “Yakutia - Khabarovsk - Vladivostok” will be built; at the second stage, the Irkutsk center will be connected by a gas pipeline to the Yakutsk center.
The route of the GTS route will run along the route of the existing main oil pipeline "Eastern Siberia - Pacific Ocean", which will allow optimizing costs for infrastructure and energy supply. The GTS route will cross, among other things, swampy, mountainous and seismically active areas.
The gas pipeline will be built almost entirely from domestically produced pipes. About 11,700 specialists will be involved in the construction of the first stage of the Power of Siberia, and about 3,000 more people will operate the gas pipeline.
The GTS received its name based on the results of a competition.
Investment decision
In October 2012, the Management Board of OJSC Gazprom (from July 17, 2015 - PJSC Gazprom) made the final investment decision on the project for the development of the Chayandinskoye field, the construction of the main gas pipeline "Yakutia - Khabarovsk - Vladivostok", as well as gas processing facilities in the city. Belogorsk.
Specifications
length - about 4000 km (Yakutia - Khabarovsk - Vladivostok - about 3200 km, Irkutsk region - Yakutia - about 800 km);
diameter - 1420 mm;
operating pressure - 9.8 MPa (100 atm.);
productivity - 61 billion cubic meters. m of gas per year.
Project implementation timeframe
Commissioning of the first part of the Power of Siberia gas transmission system - the main gas pipeline "Yakutia - Khabarovsk - Vladivostok" - end of 2017.
Socio-economic development
The expansion of Gazprom's activities in Yakutia is a serious incentive for increasing the level of socio-economic development of the region. In particular, the construction of gas transmission facilities on its territory will provide the opportunity to develop gasification. The Yakutia - Khabarovsk - Vladivostok gas pipeline will pass, among other things, through the southern regions of Yakutia. The gas pipeline route was chosen in such a way as to provide gasification to the maximum possible number of settlements.
In addition, the creation of the Yakut gas production center will increase the level of employment of the local population. When operating the gas pipeline and Gazprom's production facilities on the territory of the republic, it will be necessary to involve about 3,000 specialists. Today, Gazprom organizes the training of specialists, including residents of Yakutia, in Russian specialized educational centers, and stimulates the development of new educational programs.
Export potential
A powerful resource base in the East of Russia, the consistent formation of large gas production centers and the creation of the necessary transport corridors will make it possible to organize here a new center for export supplies of Russian gas, focused on the Asia-Pacific region.
The start of the development of the Chayandinskoye field and the implementation of the project for the construction of the Yakutia - Khabarovsk - Vladivostok main gas pipeline made it possible, along with the "western" route of pipeline gas supplies, to begin negotiations with China on the "eastern" route.
On May 21, 2014, Chairman of the Management Board of OJSC Gazprom (since July 17, 2015 - PJSC Gazprom) Alexey Miller and President of the China National Petroleum Corporation (CNPC) Zhou Jiping signed a contract for the supply of Russian pipeline gas to China. The 30-year contract provides for the export of 38 billion cubic meters to China. m of Russian gas per year.
Russia and China are becoming close partners both in the economic and foreign policy arena. Large-scale agreements regarding cooperation in business are concluded between states. These include the gas contract for the supply of blue fuel to China through the Power of Siberia pipeline.
What are the most noteworthy facts about this project? What is the scheme for the planned delivery of gas from Russia to China?
Basic information about the project
The Power of Siberia gas pipeline is supposed to be built to China from Yakutia. The largest cities through which it will pass are Blagoveshchensk, Khabarovsk, and Vladivostok. The Power of Siberia project is one of the highest priorities for Gazprom. The corresponding work will be carried out on both the Russian and Chinese sides. The gas pipeline will unite fuel distribution systems in the Irkutsk and Yakutsk centers. It is noteworthy that the name of the project - “Power of Siberia” - was determined by the Russian Federation based on the results of the competition.
It is expected that the first section of the gas pipeline - from Yakutia to Khabarovsk, and then to Vladivostok - will be put into operation by the end of 2017. It can be noted that the route of the gas transmission line will go along the route of the oil pipeline running from Eastern Siberia towards the Pacific coast. This will significantly reduce the costs of constructing the necessary project infrastructure and energy supply.
Gas pipeline characteristics and diagram
The Power of Siberia project involves the construction of a gas transmission pipeline about 4 thousand km long. It will be used to transport natural gas, as we noted above, immediately from two production centers - Irkutsk and Yakutsk, towards Khabarovsk. It is expected that the gas pipeline will become a powerful stimulus for the economic development of not only the Far East, but also the Asian part of the Russian Federation as a whole. This will be possible not only due to the growth of direct revenue and the creation of jobs at gas production and transport enterprises, but also due to the increased level of gasification in populated areas and, as a result, the opening up of opportunities for launching new production facilities. These processes will be further stimulated through budget support, in particular provided within the framework of the gas supply development program in the Primorsky Territory.
The Power of Siberia gas pipeline map looks like this.
We see that the project implementation scheme involves covering a vast territory. It will also be interesting to study the economic scale of the project.
Economic scale
The Power of Siberia gas pipeline is among the largest projects in the entire history of economic development of modern Russia. As is known, a major gas contract was signed between the Russian Federation and the People's Republic of China, as a result of which Gazprom received the opportunity to enter a new market characterized by enormous potential. According to some reports, Russia will have to supply about 1 trillion cubic meters of gas to China for a total amount of about 400 billion dollars. For comparison: Russia's GDP at PPP is about $3,500 billion. It is known that Gazprom's counterparty, the China National Petroleum Corporation, will make an advance payment of about $25 billion before fuel supplies begin. The estimated capacity of the gas pipeline is about 38 billion cubic meters of gas annually. The intensity of fuel transportation corresponding to this indicator is expected to be achieved within 5 years from the start of the first deliveries.
According to a number of experts, the Power of Siberia gas pipeline will reach its designed capacity by 2024. Now Russian enterprises are also engaged in the import of necessary materials and equipment. It is expected that during 2015, about 500-600 thousand tons of equipment will be delivered to the sites. Also in 2015, construction of the first stage of the gas transmission pipeline is expected to begin.
Signing the contract
The contract between the Russian Federation and the People's Republic of China for fuel supplies along the so-called eastern route was signed on October 13, 2014 at the level of the governments of both states. In accordance with this agreement, the key conditions for the partnership between Russia and China regarding the project were determined, including in the aspect of design, construction, and operation of the cross-border zones of the gas pipeline. The construction of the Power of Siberia gas pipeline was transferred to the competence of two companies - the Russian Gazprom and CNPC (China National Petroleum Corporation).
The signing of a contract between the Russian Federation and the People's Republic of China regarding the construction of the pipeline in question allowed our country to count on diversification of supplies of blue fuel. Now, according to analysts, there is too much dependence of Russian gas exports on sales to Europe. In addition, due to political differences between the Russian Federation and the West, difficulties may arise with the further development of partnership in the appropriate direction. Thus, the reorientation of gas exports to China is a step towards the much-needed diversification of supplies. China is a growing market with a developed industry, which always needs large volumes of blue fuel. The Russian Federation is one of the few suppliers ready to sell gas to China consistently and at reasonable prices.
Gas production resources
So, the Power of Siberia gas pipeline will supply the PRC with fuel produced in the Irkutsk and Yakutsk centers. As for the first resource, gas production is expected at the Kovyktinskoye field. Its fuel reserves are estimated at about 1.5 trillion cubic meters. As for the Yakut center, production will go to its reserves of about 1.2 trillion cubic meters.
Features of gas pipeline construction
Thus, we see how powerful and large-scale the “Power of Siberia” gas pipeline is, including in terms of its name. Who is building it? Who is implementing this international project?
An interesting fact is that the general contractors of the Power of Siberia gas pipeline may not be involved. At least, this point of view is widespread in the media. It is expected that contractors to build the Power of Siberia gas pipeline will be small organizations. In this sense, Gazprom, as some analysts note, has changed its tactics - previously, the Russian gas corporation still chose the leading partner. In the case of a project such as the Power of Siberia gas pipeline, contractors will perform local tasks.
Traditional scheme
The traditional scheme practiced by Gazprom involved the distribution of contracts within large lots, that is, the leading organization was determined, which was engaged in the construction of a particular section of the pipeline. For example, the South Stream infrastructure, before it was reoriented to Turkey, was managed by the Stroygazmontazh corporation. The European section of South Stream was to be built by Stroytransgaz. In turn, the Nord Stream project was implemented with the leading role of the Stroygazconsulting company.
Sanctions factor
The established scheme, according to analysts, is not entirely optimal in the current conditions, when Western countries have imposed sanctions against the Russian Federation. The fact is that these Russian companies also fell under them, as a result of which they cannot import some types of necessary equipment. In particular, this is Caterpillar equipment, as well as welding complexes such as CRC-Evance, produced in the USA.
Guarantee criterion
Another version explaining Gazprom’s revision of its policy towards contractors is that for such large-scale projects as the Power of Siberia gas pipeline, the Russian Federation practices requirements for bank guarantees. Gazprom itself may have difficulties with these. The fact is that the largest Russian gas company must transfer about 174.3 billion rubles to its creditors during 2015. This debt is not considered by analysts as too large for Gazprom, but now the corporation cannot attract long-term loans in case of a revenue shortfall.
There is information that a total of 15 companies will be involved in the construction of the Power of Siberia gas pipeline. Among them is the Stroytransgaz company. Among other companies with which Gazprom can enter into contracts are EVRAKOR, Argus Spets Montazh, Irkutskneftegazstroy, SpetsMontazhProekt.
The estimated costs for the construction of the “Power of Siberia” are about 770 billion rubles. Of these, in particular, about 283 billion rubles will be invested in the economy of the Republic of Sakha.
Project estimates
So, we have studied the main economic indicators of the project. We also examined the map of the Power of Siberia gas pipeline. What are the assessments of the prospects for the corresponding project among Russian analysts?
In general, experts agree that the Power of Siberia is an example of a successful international partnership. The fact is that this gas pipeline is needed equally by both Russia and China. In the political context, the project, analysts believe, contributed to the further strengthening of allied relations between the two states.
Experts rate it extremely positively. Gazprom's revenue for fuel supplies, as we noted above, will be about $400 billion. The corresponding regions of the Russian Federation will receive a significant incentive for economic development, both in terms of the influx of investments and from the point of view of building new infrastructure, including industrial.
There is a version that the main consumers of gas in the world in the medium term will be India and China. “The Power of Siberia” is a project that in this sense is completely relevant from the point of view of correlation with global economic trends. According to some estimates, in 2020 the dynamics of gas consumption in China will reach about 420 billion cubic meters.
Russia and China, having signed an agreement on the supply of blue fuel, opened up opportunities for expanding partnerships in border regions. Thanks to the presence of new infrastructure, the Russian Federation will be able to effectively develop new natural deposits, which are rich in Siberia and the Far East. Opportunities will open up in terms of import substitution and increasing industrial production in the region.
The construction of the Power of Siberia gas pipeline is expected to become a positive factor in the development of the Siberian and Far Eastern regions as a whole, including the social aspect. Citizens living in the relevant parts of Russia will receive new opportunities for employment, business, and education.
Incentive to invest
The growth of the economy of Siberia and the Far East, as analysts expect, will predetermine the growth of investor interest in these regions. At the same time, it is expected that not only businessmen from China, which is very nearby, but also from other countries - in particular, South Korea, Vietnam, and Singapore - will operate in the relevant territories. A noticeable reorientation of the priorities of domestic investors is expected. Many of them are now investing in foreign projects, and it is quite possible that their capital will also be directed to the economy of Siberia and the Far East of the Russian Federation. This may also be facilitated by sanctions restrictions applied to Russian enterprises.
It was supposed to be the great energy alliance of the future - Russia and China entered into a gigantic contract for gas supplies. However, the implementation of this $400 billion project had barely begun when the danger of disaster arose: gas prices were falling uncontrollably - and Russia did not have time to hedge its bets.
Last May, Russia proudly presented a giant gas contract with China. Under its terms, the state concern Gazprom will have to annually supply 38 billion cubic meters of gas from Yakutia and the Irkutsk region to the Far East and further to China. Deliveries should begin in 2018, once the pipeline is completed.
This is at least provided for in the contract. Construction began as early as September 2014, and Russian President Vladimir Putin said at the time that it would be “the largest construction project in the world.” However, there are already more and more signs that the “project of the century,” the cost of which Gazprom estimated at $55 billion, will turn into a fiasco—at least for Russia.
“Now Gazprom would suffer losses”
Gazprom assumed that it would receive about $400 billion for its supplies. However, when the deal was concluded, it was stipulated that the price China would pay for gas would be correlated with oil prices. And this is precisely the big problem now: at the time of the deal, the price of Brent oil was more than $100 per barrel. However, soon after this it began to decline, and now a barrel costs less than $50.
At the current price of oil, Gazprom would probably not be able to make a profit, the famous Russian analyst Ildar Davletshin suggested in an interview with the Financial Times. According to experts, the price of gas at the time of signing the contract was about $350 per 1,000 cubic meters. Now, according to Davletshin, it could fall to $175, and this would definitely be a loss-making level for Gazprom.
Putin demands 'comprehensive action plan'
But what's even worse is that Russia, by its own admission, has not secured itself in case gas prices remain low for a long time. “We do not expect such developments,” said one of the Gazprom managers, according to the Financial Times.
Obviously, the Russian leadership sees the situation differently. On Monday, the Kremlin published the words of Putin, who demanded that by early September the development of a “comprehensive action plan” for the development of infrastructure for gas supplies, including the Power of Siberia gas pipeline. Under no circumstances can Moscow allow this exemplary project to turn into a failure.
Beijing cancels another megaproject
Although Gazprom stated that it does not currently need government support, the concern’s management did not rule out that it would be needed in the future. “It’s possible that the situation will change, that sanctions will be tightened, or that we will start additional projects,” said Gazprom finance chief Alexander Ivannikov, adding: “I cannot rule out that in the future a situation will arise where we need government help.”
Meanwhile, Beijing has apparently heard the warning signs because the government recently froze another mega-project with Russia. They say that at the end of July, the Chinese leadership refused to give the go-ahead to the construction of a second gas pipeline, through which up to 30 billion cubic meters of gas would be transported from Western Siberia. This was reported by Business Insider, without giving, however, specific reasons for this decision.
China will pay in yuan instead of dollars
Perhaps China has other concerns due to the recent stock market crisis, due to which it cannot afford unnecessary investments. It is also possible “that China simply overestimated the growth of its economy and is now forced to backpedal,” suggested an expert on financial markets and host of the investment blog Armoredhorse in an interview with our publication. com Jörg Rohmann.
Nevertheless, according to the expert, the implementation of this contract makes sense for both parties. After all, just like for oil extracted in the Arctic, China will be able to pay for Russian gas not in dollars, but in yuan. Both sides announced this back in June. In this way, China can ensure that its currency becomes an alternative to the dollar. In turn, Moscow, suffering from Western sanctions, will receive a new partner and an alternative currency, which, if necessary, can be converted into dollars. “This is one element of China’s big game, but it is also a logical step for Russia,” Rohmann explained.
Russia has until May 2021 to start deliveries
However, both sides postponed the start of the Power of Siberia project. As Russian news agency Interfax reported on Monday, the contract did not come into effect until May 13, 2015—seven months later than originally scheduled. Accordingly, construction work may take longer. The latest date for the start of deliveries may even be May 2021. Thus, Gazprom has a little more time to wait for a new increase in energy prices.
Gazprom hosted a working meeting between the Chairman of the Board of the Company, Alexey Miller, and the Ambassador Extraordinary and Plenipotentiary of the People's Republic of China to the Russian Federation, Li Hui.
The meeting participants highly appreciated the level and dynamics of development of Russian-Chinese relations in the gas sector. The parties noted, the gas monopolist said in a statement, that the bilateral partnership covers a significant number of areas and continues to expand.
The key item on the agenda remains the supply of Russian pipeline gas to China. The parties confirmed full compliance with the implementation schedule for the gas supply project along the “eastern” route and discussed the progress of negotiations on the gas supply project along the “western” route. The importance of cooperation in such areas as underground gas storage, gas power generation and gas motor fuel was also emphasized at the meeting.
Let us recall that in 2014, Gazprom and the Chinese state oil and gas company CNPC signed an Agreement for the purchase and sale of Russian gas along the “eastern” route (via the Power of Siberia gas pipeline). The agreement was concluded for a period of 30 years and involves the supply of 38 billion cubic meters to China. m of gas per year. In 2015, Gazprom and CNPC signed an agreement on the basic conditions for pipeline gas supplies from the fields of Western Siberia to China along the “western” route (the Power of Siberia-2 gas pipeline). Initially, it is planned to supply 30 billion cubic meters to China. m of gas per year.
Later, in 2015, Gazprom and CNPC signed a memorandum of understanding on a project for pipeline supplies of natural gas to China from the Russian Far East.
According to the head of the operations department on the Russian stock market of Freedom Finance Investment Company Georgy Vashchenko, the parties have no significant disagreements on the timing. It is important for Gazprom to fix volumes in order to have a stable consumer. The fact is that the Asian market is premium in price, and competition from LNG there is high, including due to the projects of the same Gazprom on Sakhalin. Due to large volumes, smaller competitors can be cut off. At current prices, this will add at least 2 billion to EBITDA. But there may also be no need to rush in this matter: if the price rises by then, this will be an additional argument for construction.
Indeed, agrees Alor Broker analyst Alexey Antonov, if you look at the schedule of Russian-Chinese negotiations on gas projects this year, then almost every two months the media reports that the Power of Siberia is being built according to schedule and gas is in China will go through the pipes in 2019. Meanwhile, it is important to understand that the gas pipeline’s launch date was initially scheduled for the 2nd half of 2018. Later, the deadlines were slightly shifted to May 2019, meanwhile, in the statements of energy officials there was uncertainty even regarding this date, for example, in April of this year, one of the representatives of the Ministry of Energy indicated that supplies could begin in 20-21, but quickly retracted his words, emphasizing that these were reservations.
Moreover, the expert recalls, from the last report on the results of the first quarter of 2016, the monopolist removed information about the exact launch of gas production at the Chayandinskoye field, as well as the timing of the commissioning of the priority section of the gas pipeline, which may also suggest another delay. This is confirmed by the fact that pipe makers this year shipped fewer products to the main consumers, so we note a decrease in the output of large-diameter pipes (LDP) from the Chelyabinsk Pipe Rolling Group and the Pervouralsk Novotrubny Plant, which are one of the main suppliers for Sila Siberia and Transneft. Thus, only 323 thousand tons were shipped from LDP, which is 37% less than the first half of 2015. In other words, it can theoretically be assumed that the gas pipeline is laid with slight slippage.
Meanwhile, Antonov believes, there is no reason to assume that the Power of Siberia will stand up in construction, the parties are still obliged to fulfill their obligations, especially since at the moment Gazprom is not in the best position, the situation with Nord Stream 2 for gas supplies to Europe is completely ambiguous and ensuring stable supplies of 30 billion cubic meters of gas per year for China is a reliable way to gain a foothold in the East. Moreover, Gazprom currently has an overproduction of raw materials of more than 200 billion cubic meters of gas and it is in its interests to launch the project on time by May 2019 - the Chinese are in a more advantageous position; for failure to meet the deadlines for their obligations, they can ask for more discounts on gas and oil, and also delay the response on the Power of Siberia-2, which implies the supply of another 38 billion cubic meters of gas per year.
Of course, the analyst is sure, now the Power of Siberia for Gazprom looks rather like a burdensome project - this is primarily due to the fact that when the negotiations took place and the agreement was signed, oil cost above $100 per barrel. Now its price makes the project practically unprofitable and gas supplies, if it remains at this level, will only support the viability of the company in anticipation of better times.
Meanwhile, according to the Chinese energy strategy until 2030, the country needs to transfer its own industry and heat generation from coal to gas, and domestic gas consumption from the current amount of 53 billion cubic meters per year should reach 270 billion cubic meters when the transition is carried out in the next 7 years consumption should increase to 100 billion cubic meters of gas annually. In this situation, Alexey Antonov believes, the Power of Siberia-1 could meet China’s gas needs by more than half and the construction of a second branch of the eastern route in this situation is quite logical.
Another question is whether China will want to build the Power of Siberia-2 and whether Gazprom will agree to the specified conditions, because the construction of infrastructure on the Russian side is financed by the monopolist, and the laying conditions for the company are among the most expensive, let us recall that the total cost of the project is estimated at 44.3 billion dollars and despite the fact that due to the devaluation of the Russian currency it has fallen in price from 55 billion dollars, it will be extremely difficult to achieve break-even if the pipeline is not fully loaded. Let us add here that China also considers such countries as Turkmenistan, Kazakhstan and Myanmar as a gas supplier. The Yamal LNG project from NOVATEK may also cross the road.
Three years ago, Russia announced to the whole world its intention to develop the commodity market in a completely different direction. The authorities decided to take a turn to the east and increase gas supplies to China for 13 years. In addition, it was decided to lay new pipelines.
Difficulties in mastering a new direction could not be avoided. Thus, currently negotiations with China regarding gas supplies have gradually begun to reach a dead end. Work is currently underway on the construction of the “” pipeline, which is planned to be used. It should be put into operation in 2019. In addition, Russia is also going to start building a second line. Its throughput capacity will be 8 billion cubic meters, while the main one will be 30 billion cubic meters of gas.
Beijing, in turn, says that the second pipeline is not in demand and believes that it is not worth building. Beijing also has a negative attitude towards gas supplies from Sakhalin.
China is now purchasing LNG from other Asian countries. At the same time, purchases cost the country at more favorable prices. In addition, China is actively developing its own gas production, and the authorities are increasingly interested in.
This spring, a meeting between the presidents of the United States and China took place. During the meeting, the parties signed an agreement on the development of trade between the two countries. According to the document, the United States gains access to the Chinese energy market.
It was previously stated that China needs 200 billion cubic meters of gas per year. At the same time, 130 billion gas is provided by the Chinese themselves (see). The other 65 billion is supplied to the country from Turkmenistan.
It is known that over the next years, China will increase gas consumption. It is planned to use up to 350 cubic meters per year.