Russian gas giant Gazprom has announced it is close to completing its multibillion dollar efforts to secure long-term gas supplies for the Sila Sibiri 1 gas pipeline — the only working route for the company to deliver natural gas to China today.
The company said that gas from the Kovykta field in East Siberia is scheduled to start flowing into the 800-kilometre connector with the Chayanda field on 25 October.
These flows will be used to pressure test the pipeline connector, construction of which began in October 2020, managed by a Gazprom’s chief building contractor, Stroytransneftegaz.
Commissioning of the connector is expected to last until December this year, with Gazprom saying that first commercial gas deliveries from Kovykta are scheduled to begin in the second half of December.
The Chayanda field is currently the only asset in East Siberia that supplies gas into Sila Sibiri 1 under a long-term contract between Gazprom and China National Petroleum Corporation.
It calls for Russian pipeline gas supplies to China to gradually increase to a maximum volume of 38 billion cubic metres per annum.
However, the Chayanda field’s reserves are understood to be insufficient to secure the full contracted delivery rate via Sila Sibiri 1, with Kovykta set to supply the missing volumes for Gazprom to reach the target.
According to Gazprom, Kovykta’s current recoverable reserves are estimated at about 1.8 trillion cubic metres against Chayanda’s 1.2 Tcm.
Gazprom has not provided an explanation for the downgrade of Kovykta’s recoverable reserves, which were previously put as high as 2.7 Tcm.
Last year, the gas giant announced plans to move into exploration of three large blocks that lie next to Kovykta, to identify new development targets.
Despite issuing warnings to Europe about plans to divert gas flows to Asia, Gazprom is understood to have no plans to build a connecting pipeline to supply Sila Sibiri 1 with volumes from its largest gas-producing region, Yamal-Nenets.
Instead, it has focused on building a new dedicated line from the Yamal-Nenets region via Mongolia to China, believed to be capable of transporting up to 50 Bcm per annum of gas and already given the name of Sila Sibiri 2.
Meeting last week in Samarkand, in Uzbekistan, Chinese Premier Xi Jinping, Russian President Vladimir Putin and Mongolian President Ukhnaa Khurelsukh offered support for construction of the proposed 6700-metre pipeline, although it is not expected to come online anytime before 2030.
Russian Energy Minister Alexander Novak said on the sidelines of the Shanghai Cooperation Organisation summit, which was also held in Samarkand last week, that Russia and China would soon sign agreements on the delivery of 50 Bcm per annum of gas via the pipeline.
Putin told the Shanghai Cooperation Organisation summit that Gazprom is finalising construction details of the Soyuz-Vostok section of the new pipeline with its Chinese and Mongolian partners, according to Reuters.
The Soyuz-Vostok section is Mongolia’s segment of the line, which will span about 1000 kilometres in the east of the country.
Sila Sibiri 2 is already on China’s investment agenda. Ding Zhimin, the former deputy director of the Policy & Law Department at the National Energy Administration, said recently that China would spend 11 trillion to 13 trillion yuan (US$1.57 trillion to US$1.85 trillion) to double the nationwide gas network, including Sila Sibiri 2 to 163,000 kilometres by 2025.
In February, Gazprom committed to transport 10 Bcm per annum of gas from Russia’s Sakhalin Island to China for 30 years, with the project dubbed Sila Sibiri 3.
Including the 50 Bcm to be exported to China via Sila Sibiri 2, Russia’s gas supplies to China could exceed 100 Bcm by 2030.
Official Chinese statistics suggest the country’s gas demand will continue to increase until reaching a plateau at 550 billion to 650 Bcm per annum by 2040, when it will account for between 12% and 15% of its total energy demand mix.
In the meantime, the lack of export options other than China, for Russia’s Chayanda and Kovykta fields has led to both assets having to slow production and shut-in wells twice a year to allow regular maintenance works to be conducted on Sila Sibiri.
According to Gazprom, this year, it will halt gas flow via Sila Sibiri to China from 22 September to 29 September for its autumn maintenance programme.
With the Nord Stream 1 export pipeline to Europe shut indefinitely and restricted routes to alternative markets, Gazprom has reported that its gas exports dropped to 84.8 Bcm between 1 January and 15 September, compared with 138.5 Bcm for the same period in 2021
The company’s total gas production fell even by a wider margin — by 56.8 Bcm to about 301 Bcm — as domestic demand had been less than anticipated during this period.
Despite this decline, Moscow business daily Kommersant reported on Tuesday that the Russian Finance Ministry has proposed increasing the tax rate on its exports to 50% of the sale price from 1 January 2023 up from 30% currently, in an attempt to reduce growing budget deficit.
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