/ world today news/ Due to the increase in exports to China, as well as the restoration of the production capacities of the Sakhalin-1 project, Gazprom’s output in September increased by 2.5% to 48 billion cubic meters. However, this is still less than the pre-sanctions level. What is the outlook for the industry?
A painful separation
The Nord Stream explosions have hit gas exports hard. The capacity of the first branch is 55 billion cubic meters per year, which is more than a third of all deliveries to non-CIS countries. The second would double the figure. The successive reduction of transit opportunities and then the destruction of infrastructure led to a forced reduction in production. It is difficult to analyze the financial losses: prices vary significantly throughout the year. “If we take the pre-crisis average level of $200 per thousand cubic meters, then one day of downtime costs about $30 million in lost revenue,” said Alexei Grivach, deputy head of the National Energy Security Fund.
The eastward reorientation was complicated above all by the post-pandemic slump in business activity in China. It was also necessary to consider routes and negotiate prices. Deputy Prime Minister Alexander Novak noted that supplies have been established for decades and a change in direction will take several years.
The long-term cooperation with Europe has led to the extensive development of the gas transport infrastructure. In this regard, the Asian direction still lags behind. The design capacity of the “Power of Siberia” gas pipeline is significantly smaller than the European one – 38 billion cubic meters per year. However, deliveries have not yet reached even this level. For 2022, exports amount to a record 15.5 billion cubic meters. Reaching full capacity is expected by 2025-2027.
Negotiations are currently underway to build a new branch of “Power of Siberia – 2” with a capacity of 50 billion cubic meters per year, but it should not be expected that it will start operating soon. “The approval of the first pipe took ten years. The implementation of this project is still in question,” notes Sergey Pikin, director of the Energy Development Fund.
Recovery period
In the first half of 2023, Gazprom cut production by 25% to 179 billion cubic meters from 238 billion in the same period of 2022. According to the company’s report, this is due to geopolitical factors. However, already in August the figures increased by 2.7%, and in September – by 2.5%. Based on the results of three quarters of this year, the difference is only 5.7 percent – 474 billion cubic meters were produced.
Analysts attribute the dynamics to the gradual recovery of the Chinese economy. “At the request of our Chinese partners, deliveries are made slightly above the contract, hence the increase in production,” explains Grivach.
Independent industrial expert Leonid Khazanov recalls the growth of industrial production in China over the past few months. According to his forecast, the total annual export through the “Power of Siberia” will reach 21-22 billion cubic meters, and another seven-eight will be transported in liquefied form. In the next year, it allows an increase in the supply of blue fuel to China to 35 billion cubic meters.
There is also a positive trend in the domestic Russian market. Gas consumption in 2021 amounted to 470 billion cubic meters, in 2022 – 484, and by the end of 2023 it can be expected at the level of 490-500 billion cubic meters. Although the supply situation of gas is not the same everywhere. It is best in the European part of the country, while in the Far East the level of gasification is low, and in some regions – for example, Chukotka, Magadan and Murmansk – there are no centralized gas supply systems.
But even with the current growth of domestic consumption and exports, it is too early to talk about recovery after the Nord Stream sabotage, Grivach is convinced. “What we are seeing now is the expected stabilization after leaving the high base of last year when Nord Stream was still operating,” he explains.
Good deal
The price of gas through Power of Siberia is determined by a long-term contract with an oil link and is a trade secret. “According to indirect data, it is about 300 dollars per thousand cubic meters,” says the expert. No discount. Tariffs are tied to oil and are not subject to speculative jumps, as in the indexation of the hubs of the European market, where during the pandemic prices fell to a level below the cost of almost all suppliers and last year at their peak reached 3,000 dollars per thousand cubic meters. “As a result, while the Europeans move in the price swing, China has the opportunity to develop systematically,” concludes Grivach.
By approximately 2025, supplies through the gas pipeline will reach 38 billion cubic meters per year, and in 2027 the Far East route should be connected, which will increase exports by another 10-15 billion cubic meters. By 2035, Beijing’s demand will double. “Power of Siberia-2” is planned to meet future needs. However, there are risks.
In particular, Sergey Pikin reminds that construction requires huge costs and binds the seller to a specific direction. “The experience of the last two years has shown that the pipeline gives buyers leverage over the supplier. Moreover, when they created European infrastructure, the developers were confident that it would be needed in the next half century, and China’s energy structure could change significantly. As at least the country increases domestic production and besides Gazprom there are other suppliers,” he warns.
However, the released volumes must still be sold. Domestic consumption still cannot compensate for European consumption. A good option is the construction of LNG plants. Novatek chose this strategy. Gazprom has enough funds and access to technology to create its own medium- and large-capacity stations, experts say. Liquid fuel can be fed in any direction.
Translation: V. Sergeev
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