Gazprom will drag the pipe from Sakhalin to China

The gas corporation hopes that China will help the equipment to develop the resource base of the new gas pipeline, the South Kirinskoye field.
Gazprom began designing a gas pipeline to China from Sakhalin, which could become the second project for the supply of Russian pipeline gas to the People's Republic of China after the Force of Siberia. Consumption and imports of gas in China are growing rapidly, and prices have reached a level that makes the project attractive to Gazprom. But analysts do not expect an early signing of a binding contract with the Chinese, since Gazprom has not resolved the key problem of the development of the South Kirinsky deposit, which is under US sanctions.

Gazprom ordered Gazprom Projecting its structure for the development of design documentation for a new gas pipeline to China, the company's documents show. This is a diversion from the Sakhalin-Khabarovsk-Vladivostok gas pipeline (SHV), its capacity and length are not specified. We are also talking about the design of a gas measuring station and a gas preparation unit.

This is the first concrete step by Gazprom in the plan to supply gas to China via the "eastern route" from Sakhalin, which the company's management already called the next project after the launch of the "Siberia Power" gas pipeline in December 2019. At the end of 2017, the main terms of supply were signed with the Chinese CNPC, but they did not include the price of gas and the timing of the start of exports. The volume of supplies should be at least 8 billion cubic meters per year, for which Gazprom plans to expand the SCB to a capacity of 20 billion cubic meters by 2020. However, as the interlocutors of Kommersant mark in the industry, designing by itself does not at all imply the immediate readiness of Gazprom to build an allotment to China: "Everything can be projected and put on hold." Expansion of the company is also not forcing: the announced tenders in the volume of 23 billion rubles. to supply pipes for the construction of 380 km of lopings were then canceled.

Nevertheless, now there are favorable external circumstances for signing a new contract for the supply of gas to China. Gas consumption in the PRC is growing rapidly, mainly due to purchases of liquefied gas, which since the beginning of the year increased by 45% compared to last year, to 40.4 billion cubic meters. At the same time, prices are also growing: now, according to Platts, LNG with the supply to Northeast Asia in December is trading at $ 12.2 per MBTU (million British thermal units), or about $ 440 per 1,000 cubic meters. Such a price level would be quite comfortable for Gazprom, and the company could, in negotiations with the CNPC, insist on direct linking of the price of pipeline gas to LNG prices, since Sakhalin's gas resources can also potentially be exported as liquefied gas. Finally, the geopolitical and trade confrontation with the US means that China is unlikely to actively buy American LNG on a long-term basis and is forced to look for more reliable sources of supply.

But the uncertainty with the resource base calls into question the conclusion of the contract in the near future, says Maria Belova from Vygon Consulting. The only source of new supplies from Sakhalin is the offshore Yuzhno-Kirinskoye field. It is under US sanctions, which is why Gazprom can not use for its development underwater production complexes of Western production. Nevertheless, the company is going to drill and test four production wells in 2019, expecting to receive foreign underwater equipment (see "Kommersant" on May 15). The interlocutors of Kommersant assumed that the equipment could be Chinese. While the start of production at the field is planned for 2023.

"Since there is no understanding of how the South Kirinskoe will be developed, and also when it is introduced, it is difficult to count on an early signing of a binding contract with the Chinese," Belova believes. At the same time, she admits that non-binding documents may be signed this year. A forum for this can be a forum in Vladivostok on September 11-13, where Vladimir Putin and President Xi Jinping are scheduled to meet.