Sino-Russian Pipeline to Shake up Energy Markets 1

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Thursday, September 11th, 2014
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Russian President Vladimir Putin has announced the start of construction work on what is set to be the one of the biggest pipelines in the world, running from gas fields in Siberia to the border with China in the Russian Far East.

The “Power of Sibera” pipeline will extend for nearly 4,000 kilometres and enable Russia to make good on the gargantuan US$400 billion gas contract executed by Moscow-based Gazprom, the world’s biggest gas company, with Chinese state-owned enterprise the China National Petroleum Corporation (CNPC) earlier this year in May.

“We along with our Chinese friends are starting the biggest construction project in the world,” said Putin. “There will be no other larger project in this sphere in the near future.”

Chinese Vice Premier Zhang Gaoli was also in attendance at the ceremony for the pipeline, held in the Siberian city of Yakutia, where he announced that China would commence work on its end of the pipeline in 2015.

Construction work on the $20.8 billion pipeline is expected to be finished in just four years, with first gas due for delivery from Siberia to China by early 2019.

“China already plans in the first half of next year to start building the Chinese section of the pipeline and we should make an effort to complete construction and begin exploitation of the pipeline in 2018,” said Zhang.

Upon completion, the pipeline have an annual capacity of 61 million cubic metres of gas, permitting the delivery 38 billion cubic metres of natural gas from Russia to China over a three-decade period.

In addition to providing China with an abundant supply of natural gas to support its economic growth, the pipeline will also help Russia reduce its dependence upon the Eurozone as an export market, where member states have imposed sanctions against Russia as a result of its actions in Ukraine.

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Russian President Vladimir Putin at construction launch

“After we create a network of gas pipelines here, in the Far East and Siberia, we’ll have the opportunity to unite the European part of the gas pipeline with its eastern part,” said Putin. “From the standpoint of export possibilities and expanding the geography of the country’s gas infrastructure development, this will give us big advantages in rechanneling gas flows, depending on the world market situation – either to send more gas to the west and achieve greater effect or to the east.”

The $400 billion deal between Gazprom and CNPC was considered a major coup for the Kremlin after a decade of fraught negotiations, serving as a symbol of Russia’s growing economic ties with China. The Middle Kingdom is already Russia’s biggest trading partner with bilateral trade flows of $90 billion in 2013 – a figure which is expected to more than double to $200 billion in a decade’s time.

Many British analysts have also expressed concern, however, that the deal with CNPC would result in higher prices for EU gas consumers, given the market’s dependence upon Russian supply.

Gazprom is one of few major Russian corporations which is not directly affected by Western sanctions due to its critical role in providing Europe with gas. The company provides Europe with around a third of its gas supply, delivering it 161.5 bcd in 2013 alone.

Gazprom’s relationship with this critical export market is nonetheless threatened by the crisis in Ukraine, however, given the latter’s vital role as a transit zone for Russian gas.

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Diagram of Power of Siberia’s route

While Russia is already the biggest gas exporter in the world, the expansion of its domestic pipeline infrastructure will also facilitate the deployment and usage of natural gas within its own borders, in a move which Putin has previously described as a “major step forward in the gasification of our own country.”

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  1. Joseph Paul

    I love Putin's description of his 'Chinese friends' – he certainly doesn't have any other friends. He is, and has long been, an embarrassment to his country.

    I guess from China's perspective, it does need gas and probably doesn't care much about geopolitical issues.

    All this underscores the need for America to lift its ban on exporting shale gas to Europe. Only then could Europe make a credible threat of any real action against Russia and threaten the inefficient and badly managed oil based economy which is underpinning the political fortunes of that utter disgrace of a man Russia calls its leader.