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Partner Perspectives

Apr 11, 2017 | 18:33 GMT

A Snapshot of Key Developments in the External Relations of the Russian Gas Sector

A Snapshot of Key Developments in the External Relations of the Russian Gas Sector
Partner Perspectives are a collection of high-quality analyses and commentary produced by organizations around the world. Though Stratfor does not necessarily endorse the views expressed here — and may even disagree with them — we respect the rigorous and innovative thought that their unique points of view inspire.

By Dr. Jack Sharples for The European Geopolitical Forum (EGF)

Key points:

  • Gazprom and the EU:

o   Gazprom on the European market: Gazprom prepares for limited recovery of gas prices, and hopes for continued large sales volumes, on the European market in 2017

o   Gazprom in the Baltic region: Plans for Estonian LNG terminal hit setback as Paldiski project denied EU funding; Gazprom proposes new Baltic gas auction in summer 2017; Gazprom sub-contractor signs contract with German Linde for mid-scale Baltic LNG terminal

  • Nord Stream: Gazprom consolidates its 100 percent shareholding in Nord Stream 2 AG project consortium; Gazprom awards tender for offshore pipelaying to Allseas; Swedish municipality agrees to lease port facilities for Nord Stream 2 construction
  • Southern Corridor: President Putin signs law confirming Russian ratification of Russia-Turkey Intergovernmental Agreement on Turkish Stream; Gazprom signs pipe-laying contract with Allseas for second line of Turkish Stream, announces construction launch in H2 2017
  • Ukraine: Kyiv court dismisses Gazprom’s appeal over forced recovery of anti-monopoly fine; Naftogaz voices concerns over drop in pipeline pressure on Russian-Ukrainian border at Sudzha
  • Asia: Gazprom CEO holds meetings to discuss progress on Power of Siberia and possibility of gas exports to China from Russia’s Far East; Context: Gazprom and CNPC; Analysis: The utility of pipeline gas exports to China from Russia’s Far East; Gazprom intends to take final investment decision on expansion of Sakhalin LNG terminal in 2018
  • Other news: Second line of Bovanenkovo-Ukhta pipeline brought on stream

Gazprom and the EU

Gazprom on the European market

Gazprom prepares for limited recovery of gas prices, and hopes for continued large sales volumes, on the European market in 2017

At the Gazprom Investor Day in Singapore on the 28th of February, Deputy Chairman, Alexander Medvedev praised Gazprom’s price competitiveness and success in delivering record volumes to the European gas market: “Europe was, is and will remain Gazprom’s priority market. We can’t see yet who else could offer European customers natural gas that’s as affordable”.

In 2016, Gazprom supplied 34 percent of European natural gas consumption and 66.5 percent of imports, as it exported a record volume of 179 bcm to the European market (including Turkey).

The main reason behind Gazprom’s substantial sales volumes is price competitiveness. With the majority of Gazprom’s long-term contracts being priced on the basis of oil-indexation, the low oil prices of 2015-16 made Gazprom’s supplies extremely competitive against hub prices (see fig.1). Given that Gazprom’s existing customers with long-term contracts are able to nominate daily delivery volumes and benefit from guaranteed supplies (which is not the case with hub purchases), they were happy to take the volumes.

Of course, while competitive prices stimulate increased sales volumes, they do also have a negative impact on profitability. According to Medvedev, Gazprom’s European export price averaged USD 167 per thousand cubic metres (mcm) in 2016, down from USD 234 in 2015. The appendix to that presentation shows that in the first 9 months of 2016, sales revenues were down 11 percent year-on-year, with total sales revenues in 2015 themselves being down 32 percent from 2014 and 39 percent from 2013 (as measured in USD).

With that in mind, it may prove something of a relief for Gazprom that Medvedev was able to predict that Gazprom’s average European gas export price could recover to USD 180-190 per mcm in 2017.

While higher prices could dampen demand, Gazprom is also hoping to maintain is high levels of export volumes. It was recently announced that Gazprom’s exports to the European market in January 2017 were 26 percent higher than in January 2016, and Gazprom expects to record a strong performance in Q1 2017.

However, it is later in the year that the influence of rising oil prices will become apparent. The price of Brent crude (the European oil price benchmark) rose from USD 34 per barrel (bbl) in Q1 2016 to USD 55/bbl in January 2017. The IMF report that the price of ‘Russian gas in Germany’ (the benchmark for Russian oil-indexed gas prices in Europe) fell from USD 7.30 per million British thermal units (mmbtu) in 2015 to USD 4.40 per mmbtu in 2016, and has recovered to USD 5.10 per mmbtu in January 2017.

Therefore, in the context of rising prices, Gazprom’s export volumes in H2 will provide a clearer indicator of whether the company can maintain its export volumes in 2017, although the strong performance in Q1 will undoubtedly be welcomed by Gazprom.

Gazprom in the Baltic region

Plans for Estonian LNG terminal hit setback as Paldiski project denied EU funding

As part of plans to diversify Estonia’s natural gas supplies, two LNG import terminals have been proposed: The Paldiski terminal (by the Alexela Group) and the Muuga terminal (by Vopak). In addition, a pipeline connection between Estonia and Finland (the Baltic Connector) has also been proposed.

Alexela applied for EU funding to support their projects, but on the 20th of February it was announced that Alexela’s Paldiski project would not be awarded EU funding. The apparent reasoning is that the Baltic region already has an LNG import terminal (the Klaipeda terminal in Lithuania). The terminal at Klaipeda has a regasification (i.e. import) capacity of 10.2 million cubic metres per day, or 3.7 billion cubic metres per year.

Gazprom has a contract to supply natural gas to the Estonian Eesti Gaas until the end of 2018.

For comparison, Gazprom’s contract with the Lithuanian Lietuvos Dujo Tiekimas (LDT) expired at the end of 2015, while Gazprom’s contracts with Latvijas Gaze (Latvia) and Gasum (Finland) will not expire until 2030 and 2031 respectively.

According to Eurostat and the International Energy Agency, Lithuanian gas imports in 2016 totalled approximately 4.4 bcm, while imports by Estonia and Latvia were 0.5 bcm and 1.5 bcm respectively. Finally, Finland’s imports totalled around 2.5 bcm.

Given Gazprom’s long-term contracts with Latvijas Gaze and Gasum, the ‘short-term’ gas demand (i.e. imports by Lithuania and Estonia) total just 5 bcm. Therefore, a further Baltic LNG import terminal would only be needed if the stakeholders intended to completely abandon imports of Russian gas.

In short, the Lithuanian terminal has already achieved the main goal of regional import diversification, and the European Commission does not see the utility in using public money to fund further import capacity.

However, a representative of the Alexela Group's board, Marti Haal, declared that Alexela Group would continue searching for private investment for the Paldiski project, on the grounds that it will be needed to supply both Estonia and Finland, via the Baltic Connector. Furthermore, Haal pointed out that the lease on the Klaipeda floating terminal expires in 2024, and that although there is the possibility for Klaipeda Nafta to purchase the terminal at that point, it could be guaranteed:

The floating terminal in Klaipeda is currently the sole functioning terminal in the Baltic region. Its lease runs out in 2024 and the regional LNG terminal must be finished by that time. The Paldiski LNG terminal developed by Alexela is economically and logistically the best option in Finland and the Baltic countries.

Meanwhile, Vopak is still conducting its feasibility study, and preparing its own application for EU funding. In July 2016, it was announced that the EU would fund 75 percent of the cost of the Baltic Connector.

Gazprom proposes new Baltic gas auction in summer 2017

At the Gazprom Investor Day in Singapore on the 28th of February, the Gazprom Deputy Chairman, Alexander Medvedev, announced that “We have preliminary scheduled the next auction for this summer”. Gazprom’s first (and, so far, only) Baltic gas sales auction took place in March 2016, where the purchasing counterparties were almost exclusively Lithuanian.

Given that the ‘reserve price’ was not (and will not be) below Gazprom’s long-term contract price, it is clear that Latvijas Gaze (Latvia) and Eesti Gaas (Estonia) have no need for supplies purchased at auction. However, the situation may change in Latvia, as the unbundling of Latvijas Gaze is implemented during 2017, which will grant competing suppliers access to Latvia’s pipeline system and, by extension, to Latvian consumers.

Gazprom sub-contractor signs contract with German Linde for mid-scale Baltic LNG terminal

Gazprom is planning to construct a mid-scale LNG export terminal on its Baltic sea coast. Specifically, the terminal is planned to be located close to the Portovaya compressor station on the Gryazovets-Vyborg pipeline. The Portovaya compressor station is located close to Vyborg – the point at which the Nord Stream pipeline begins.

The terminal is planned to have an LNG production capacity of 1.5m tonnes per year, and could serve small-scale LNG terminals in the Baltic region, including Gazprom’s own planned terminal in Kaliningrad. According to the International Gas Union, a small scale (liquefaction or regasification) LNG terminal is one with a capacity of less than 1 million tonnes per annum (mtpa). Thus, while not large, the proposed Portovaya terminal would be classed as ‘mid-scale’.

On the 7th of February, Linde announced that it had signed a contract with Gazprom’s sub-contractor, SRDI Oil & Gas Peton LLC. According to the press release from Linde itself, “Linde will perform basic engineering for the process plant and supply the equipment and related bulk material for the cryogenic units of the plant”.

Interestingly, there is no information about the project on Gazprom’s website, nor is it mentioned in Gazprom’s Annual Report. Peton itself issued a brief press release on the 1st of November 2016, announcing that the “implementation of the project” had begun, and would be completed by 2018. However, the project is listed on the Leningrad Region investment website as having a timespan of 2016-2020, and the notion of a small-scale LNG plant near Portovaya was mentioned in a presentation by a Gazprom representative at the IPLOCA Regional Meeting for Eastern Europe in April 2016. Furthermore, in October 2015, Russian media sources reported that Gazprom Design had announced a tender for soil studies and exploratory drilling at the proposed site. Finally, if we go back to 2012, Portovaya was listed as a potential project in a Gazprom presentation at the Small-Scale LNG Forum in Istanbul in October of that year.

While this project may have slipped ‘under the radar’, if implemented, it could prove a useful asset for Gazprom on the developing small-scale Baltic LNG market.

Nord Stream

Gazprom consolidates its 100 percent shareholding in Nord Stream 2 AG project consortium

On the 3rd of February, reports emerged that the Gazprom Board of Directors had approved a decision to consolidate Gazprom’s 100 percent shareholding in Nord Stream 2 AG – the consortium for implementing the Nord Stream 2 project.

The consolidation represents the latest in a series of developments that began with opposition from the Polish anti-monopoly watchdog in July 2016, Gazprom’s decision in August 2016 to withdraw its request for approval of transferring shares in Nord Stream 2 AG to its European partners (Shell, Uniper, Wintershall, ENGIE, and OMV). Then the Nord Stream 2 AG shareholder agreement was terminated in November 2016. All of these developments have been covered in previous issues of the Gazprom Monitor.

Gazprom awards tender for offshore pipelaying to Allseas

On the 22nd of February, Gazprom announced that it had awarded the tender for laying both lines of the Nord Stream 2 pipeline in the Baltic Sea to the pipe-laying company, Allseas. Gazprom and Allseas had previously signed a ‘letter of intent’ in December 2016.

According to the Nord Stream 2 AG project consortium, Allseas will lay the offshore pipes in 2018 and 2019, using three pipelaying vessels – Pioneering Spirit, Solitaire and Audacia.

Swedish municipality agrees to lease port facilities for Nord Stream 2 construction

On the 31st of January, it was announced that the Swedish municipality of Karlshamn had agreed to lease its port facilities to Nord Stream 2 AG, for the offshore construction of the Nord Stream 2 pipeline.

On the 17th of February, the port of Karlshamn authorities issued a press release, which quoted the port CEO, Mats Olsson, stating:

(The) Port of Karlshamn will shortly sign a contract with the Dutch company Wasco Coatings Europe BV, regarding handling and storage of pipes for the Nord Stream 2 project… We are a commercial business with no competence to make judgements in matters concerning security politics. We have considered the Governments views and we have presented facts about the operation in the port in general and this logistics project in particular. We are pleased to note that the Government came to the conclusion that the project can be considered to be a part of our normal operation.

Interestingly, the press release appears to emphasise the non-Russian nature of the project:

As a port our consideration was to evaluate a business with a Dutch company that will transport German pipes directly from Germany to Karlshamn for temporary storage. Then the pipes will be shipped to a laying barge in the Baltic Sea. This means a marginal increase of the vessel calls in the port. All work will mainly be carried out by employees of the port. Security will be ensured via a Swedish security company.

We are talking about purchasing services from the port, not leasing the port. The pipes for Karlshamn will be produced by Europipe GmbH in Mülheim and get a concrete coating in Mukran, Germany by Wasco Coating. After that they will be shipped to Karlshamn. Outbound logistics and laying of the pipeline will be performed by Allseas Group S.A. based in Switzerland. Russian vessels will not be used.

Yet the press release also emphasised the ‘normality’ of cooperation with Russian industries:

The Port of Karlshamn is a major player when it comes to cargo flows between East Europe and the Nordic countries, with most RoRo cargo between Sweden and the Baltic States/Russia. Since many years back vehicles and other cargo are carried to and from Lithuania, Latvia, Russia and CIS states via Port of Karlshamn. During 2016 about 700 vessels with Russian crew members was calling the port.

The Port of Karlshamn is one of the top oil ports in Sweden. Large volumes of oil and LPG from Russia are stored in tanks and ground storage. According to the Swedish Institute of Petroleum (SPI), 40-50% of Swedish import of crude oil is supplied from Russia.

To operate and develop the Port of Karlshamn as a major port in the future and at the same time excluding Russian vessels and cargo will be difficult. If the Government should prohibit us from doing this business, which businesses are we then allowed to do? Is the port allowed to develop, or will the Swedish Government / Swedish Defence make limitations for the cargo flow? What would then the consequences be for the Swedish Industry?

The press release reflects the fact that the agreement is somewhat contentious, given that the Swedish government had previously voiced concerns over Sweden’s national security, while the local authorities in Gotland had refused an agreement similar to that recently signed by Karlshamn.

Southern Corridor

President Putin signs law confirming Russian ratification of Russia-Turkey Intergovernmental Agreement on Turkish Stream

On the 7th of February, the Russian President, Vladimir Putin, signed a law confirming the Russian ratification of the Russia-Turkey Intergovernmental Agreement (IGA) on the Turkish Stream pipeline.

The IGA was originally signed on the 10th of October 2016, stipulating the construction of two lines, with a combined capacity of 31.5 bcm per year.

The IGA was subsequently ratified by the Turkish parliament and signed off by the Turkish President, Recep Tayyip Erdogan, on the 6th of December.

The IGA was approved by the lower house of the Russian parliament (the Duma) on the 20th of January, and by the upper house (Senate) on the 1st of February, before being signed off by President Putin a week later.

Gazprom signs pipe-laying contract with Allseas for second line of Turkish Stream, announces construction launch in H2 2017

On the 20th of February, Gazprom issued a press release announcing that it had signed a contract with the pipe-laying company, Allseas, for the laying of the second line of Turkish Stream. The agreement on the second line represents the exercising of an option included in the contract with the first line, which was signed by Gazprom and Allseas in December 2016.

At Gazprom’s Investor Day in Singapore on the 28th of February, Oleg Aksyutin (who is both a member of Gazprom’s Management Committee and a member of the Board of Directors of South Stream Transport – the project vehicle for Turkish Stream), stated:

To date, the major part of work on expanding the gas transportation system on Russia’s territory is complete and we plan to start the construction of the pipeline’s offshore section in the second half of 2017.

Specifically, Aksyutin is referring to the development of new gas pipelines in Russia to connect Russia’s Black Sea coast with the existing pipeline network. This work was originally undertaken as part of the South Stream project, and involved the construction of two new pipelines, the ‘Western Route’ and the ‘Eastern Route’ of what Gazprom refers to as Russia’s ‘Southern Corridor’.

As illustrated in fig.2, the Western Route is designed to re-route gas that is currently delivered to Ukraine (and onwards to Europe) from longstanding gas-producing fields in North-West Siberia. The Eastern Route is designed to connect the Southern Corridor with new gas production on the Yamal Peninsula.

Work on the Western Route began in 2010, and by the summer of 2014, two-thirds of the pipeline had been built. In March 2015, Gazprom announced that construction had begun on the Eastern Route. However, the suspension of the Turkish Stream project in November 2015 led to a halt in the development of the Western and Eastern Routes before they were completed. In April-May 2016, Gazprom announced that it had written off a substantial part of its investment in the Southern Corridor and that infrastructure (namely unused steel pipes) would be re-allocated to the Nord Stream 2 project.

The revival of Turkish Stream has led to the renewal of work on the Southern Corridor, hence Aksyutin’s statement in Singapore. If work on the offshore section of Turkish Stream does indeed begin in H2 2017, and take two years (as scheduled), this should be sufficient time to finish the Southern Corridor.

Gazprom and Ukraine

Kyiv court dismisses Gazprom’s appeal over forced recovery of anti-monopoly fine

In January 2016, the Anti-Monopoly Committee of Ukraine (AMCU) announced that Gazprom had abused its monopoly position with regard to gas transit via Ukraine, and imposed a fine of 85bn Hryvnia (USD 3.5bn). Specifically, it appears that the AMCU was critical of the fact that Gazprom has booked gas transit capacity via Ukraine but in recent years has shipped less and less gas to Europe via the Ukrainian system, possibly in breach of the ‘ship-or-pay’ terms of the Gazprom-UkrTransGaz gas transit contract.

Gazprom’s first appeal was dismissed by the Economic Court in Kyiv on the 18th of May. The Supreme Economic Court of Ukraine ruled against Gazprom on the 13th of July, and Gazprom’s appeal at the Supreme Economic Court was dismissed on the 13th of September.

At the beginning of October, it was reported that the Kyiv Commercial Court would hear a claim by AMCU demanding the enforced recovery of the fine. The AMCU is also seeking additional penalties amounting to an additional 86 billion Hryvnia ($3.4bn) for the non-payment of that fine, following Gazprom’s unsuccessful appeal in September.

Then, on the 5th of December, the Economic Court in Kyiv ruled in favour of the AMCU in its bid to enforce the recovery of a fine it had first imposed on Gazprom almost one year earlier.

Gazprom appealed against the forced recovery of the fine, and that appeal was dismissed by the Kyiv Commercial Court of Appeal on the 22nd of February, although sources report that Gazprom may lodge a further appeal with the Supreme Economic Court of Ukraine.

One factor to consider is how the ‘forced recovery’ of the fine may actually take place, given that Gazprom claims to have no assets in Ukraine. Indeed, the Gazprom CEO, Alexei Miller, caused a stir when (following the December 2016 ruling) he suggested that the only asset Gazprom had in Ukraine was Russian gas passing through the Ukrainian gas transit system, and that any attempt to seize this ‘asset’ would result in interruptions in gas transit via Ukraine to European consumers. Miller’s comments, and the Naftogaz reaction, were reported in the December 2016 edition of the Gazprom Monitor.

Naftogaz voices concerns over drop in pipeline pressure on Russian-Ukrainian border at Sudzha

On the 28th of February, Naftogaz issued a statement that it was concerned about a severe drop in pressure in one of the pipelines through which Russian gas enters Ukraine for onward transit to Europe. That pressure was measured at the Sudzha border crossing, on the Russian-Ukrainian border.

From the 8th of January to the 20th of February, total gas flows from Russia into Ukraine remained relatively stable, at levels between 2,861m kilowatt hours per day (kWh/d) and 3,157m kWh/d. However, between the 20th of February and the 2nd of March, those levels fell from 2,953m kWh/d to 2,302.6m kWh/d. Specifically, gas flows into Ukraine via the Valuyki, Pisarevka, and Sokhranovka border crossings remained stable, but flows via the Sudzha border crossing fluctuated significantly (see fig.3).

However, as can be seen in fig.4, gas flows out of Ukraine (i.e. the transit of Russian gas across Ukraine), fluctuated in a similar pattern. Specifically, flows out of Ukraine to Slovakia through the Uzhgorod-1 and Uzhgorod-3 pipelines remained stable, as did flows to Poland via the Drozdovichi border crossing. Meanwhile, flows to Slovakia via the Uzhgorod-2 and Uzhgorod-4 border crossings, and flows to Hungary via the Beregdaroc border crossing, fluctuated in line with the variations in flows via the Sudzha border crossing.

So, does this mean that Gazprom was shifting its gas transmission to other routes, and using fluctuations in gas transit volumes to demonstrate the ‘instability’ of the Ukrainian system, as some media sources have suggested? Data from ENTSOG appears to suggest not.

During the same period, gas flows via Nord Stream and OPAL increased in January, as the Gazprom-BNetzA agreement on OPAL usage was implemented. At the end of January, gas flows via OPAL fell, as the Gazprom-BNetzA agreement was suspended. This was discussed in last month’s edition of the Gazprom Monitor.

However, transmission volumes via both OPAL and NEL (as outlets for Nord Stream I) remained stable during February, and did not fall at the end of the month. Therefore, gas deliveries were not being re-routed from Ukraine to Nord Stream at the end of February (see fig.5). Nor were they being re-routed via Belarus, with gas deliveries via Belarus to Poland remaining stable throughout January and February (see fig.6).

Rather, it seems that fluctuations in gas delivery volumes may reflect fluctuations in demand for Gazprom’s gas supplies on markets west of Ukraine, and that Gazprom has simply decided to use the Ukrainian gas transit corridor as its ‘swing’ system, while maintaining stable volumes on its other delivery routes. This, in turn, may reflect the fact that Gazprom is a shareholder in both Nord Stream (OPAL/NEL) and Yamal-Europe, but not in the Ukrainian system, and prefers to utilise its own assets where possible.

A further source of fluctuation was the variation in daily gas delivery volumes from Ukraine to Romania, with flows from Ukraine to Romania, and onward flows from Romania to Bulgaria, and Bulgaria to Greece and Turkey, showing sharp declines at the end of February (see figs.7 and 8).

A map illustrating these cross-border connections and metering points is given in fig.9.

Ultimately, it appears that the decline in gas flows into Ukraine at Sudzha at the end of February were mirrored by declining demand for Russian gas delivered via Ukraine in Slovakia, Hungary, Greece, and Turkey. Indeed, such a decline in European demand for Russian gas was noted by Platts, which identified a 10 percent drop in Russian gas flows to Europe during the final week of February.

Whether Gazprom compensated for declining deliveries to Turkey via Ukraine with higher deliveries via Blue Stream is not known – ENTSOG does not provide data for this pipeline, and the most recent data from the IEA is for December 2016. Therefore, in approximately two months, we may have IEA data to corroborate the data from ENTSOG discussed above.

Gazprom in Asia

Gazprom CEO holds meetings to discuss progress on Power of Siberia and possibility of gas exports to China from Russia’s Far East

In mid-February, the Gazprom CEO, Alexei Miller, travelled to Beijing for meetings with representatives of the Chinese government and the China National Petroleum Corporation (CNPC). In particular, Miller’s meeting with the Chairman of the Board of Directors of CNPC, Wang Yilin, included an appraisal of progress with the Power of Siberia project. Following that meeting, Gazprom announced that the project was “going according to schedule, with preparations underway for the construction of the cross-border section” at Blagoveshchensk.

The meeting was also notable for its discussion of the prospects for Gazprom exporting gas to China by pipeline from Russia’s Far East. Indeed, following the meeting, Gazprom issued a press release, announcing: “The sides summed up the study of the main technical issues and today reached agreement to shift to the commercial stage of negotiations on the project”.

Given that CNPC is unlikely to require confirmation of additional supply volumes from Gazprom at this stage, it is possible that such ‘commercial negotiations’ could focus on Gazprom’s use of gas supplies from Russia’s Far East to meet its obligations under the gas supply contract it signed with CNPC in 2014.

Context: Gazprom and CNPC

In May 2014, Gazprom and CNPC signed a gas supply contract for the delivery of 38 bcm per year of Russian gas to China. The parties envisaged that the gas would be produced in Eastern Siberia, at the Chayanda and Kovykta gas fields, and delivered to China via the Power of Siberia pipeline. This project is also referred to as the ‘Eastern Route’.

The Power of Siberia pipeline was initially planned to have a capacity of 61 bcm per year, with 20 bcm slated for deliveries to Gazprom’s proposed LNG terminal in Vladivostok. That LNG project was subsequently cancelled, and the proposed capacity of the Power of Siberia scaled down.

In September 2015, Gazprom and CNPC signed a memorandum of understanding on the possibility of delivering gas from Russia’s Far East to China. Specifically, this would mean Gazprom using gas produced offshore off Sakhalin Island, and delivering to China by expanding the Sakhalin-Khabarovsk pipeline and adding a spur from Khabarovsk to Blagoveshchensk, where the Power of Siberia pipeline will also cross into China.

Analysis: The utility of pipeline gas exports to China from Russia’s Far East

Given that Gazprom foresees initially limited deliveries via the Power of Siberia, with volumes ramping up over several years leading up to 2030, the use of gas produced at already-operational fields and the already-existing Sakhalin-Khabarovsk pipeline would allow Gazprom to meet its contractual commitment of beginning deliveries to China while simultaneously gaining some ‘breathing room’ with regard to the construction of the Power of Siberia and the development of gas production at Chayanda and Kovykta.

Indeed, it could allow Gazprom to delay the development of the Kovykta gas field (which lies 800km west of Chayanda) and focus its efforts on competing the first line of the Power of Siberia from Chayanda to Blagoveshchensk. The development of Kovykta and a second line of the Power of Siberia could then begin five years from now.

Gazprom intends to take final investment decision on expansion of Sakhalin LNG terminal in 2018

Another piece of news to come out of Gazprom’s Investor Day was the announcement that the company will not take its final investment decision (FID) on the expansion of the Sakhalin LNG export terminal until 2018. This represents a delay from the previous plan to take the FID in Q3 2017.

Other News

Second line of Bovanenkovo-Ukhta pipeline brought on stream

The geography of Gazprom’s gas production has changed substantially over the past five years. As recently as 2011, the Nadym-Pur-Taz region of North-West Siberia (around the town of Novy Urengoy) accounted 88 percent of Gazprom’s gas production.

In 2008, Gazprom drilled its first production well at the Bovanenkovo gas field on the Yamal Peninsula, to the north of Novy Urengoy. At the same time, Gazprom launched the construction of a new gas pipeline – Bovanenkovo-Ukhta – to deliver gas from Bovanenkovo to European Russia, and onwards for export. In 2012, Gazprom launched both commercial gas production at Bovanenkovo, and the first line of the Bovanenkovo-Ukhta pipeline. The first line of a new pipeline from Ukhta to Torzhok was completed the following year.

Since 2012, Gazprom has ramped up gas production capacity at Bovanenkovo to 90 bcm per year, with actual production reaching 67 bcm in 2016. The full production capacity of Bovanenkovo is set to reach 115 bcm (around one-quarter of Gazprom’s current annual production) in the coming years.

To cope with the increased production volumes, Gazprom has constructed a second line of the Bovanenkovo-Ukhta pipeline, which was launched in January 2017. Together, the two lines of the Bovanenkovo-Ukhta pipeline have a capacity of 115 bcm per year. Construction of the second line of the Ukhta-Torzhok pipeline was launched in October 2015, and is scheduled for completion in 2019.

From the map given in fig.10 of this report, it is clear that the new pipelines and gas production are intended to underpin Gazprom’s continued European exports via the Yamal-Europe and Nord Stream pipelines.

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