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The Power of Siberia gas pipeline that will carry Russian natural gas to China is moving ahead of schedule, with 720 km of the 3,000-km structure already built, Gazprom’s chief executive Alexei Miller told a Russian TV channel, as cited by local online media. Miller was also quoted as saying that Gazprom will settle the main terms of the deliveries via the Power of Siberia soon.
The pipeline is a key element in a 30-year gas supply deal between Moscow and Beijing worth US$400 billion in total. Under the terms of the deal, signed in 2014, the China National Petroleum Corporation, or CNPC, will buy 38 billion cubic meters of natural gas from Gazprom annually, starting in 2025. Before that year, it will be receiving smaller amounts of the fuel.
The full 38-billion cubic meter volume represented a fifth of China’s oil consumption in 2014 and 60 percent of its imports in that year.
The Russian side committed to spend US$70 billion, including US$35 billion for the construction of the Power of Siberia, US$20 billion for field development, and another US$15 billion for a gas-treatment plant, to be built on the Russian-Chinese border in partnership with local chemicals major Sibur.
The contract is of strategic importance for the two sides, more so for Russia, which needs markets for its gas more than China needs specifically Russian gas deliveries – everyone is eager to export gas to China as Asia’s second-biggest economy shifts away from coal and into less polluting energy sources.
While Gazprom is limited in its choice of markets and is facing stern opposition in the European Union because of its perceived dominant position, China can pick from a host of gas suppliers, including the U.S. Just last week, Presidents Donald Trump and Xi Jinping struck a deal for U.S. LNG supplies, as well as some goods, to China.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
Actually, Russia and China are both equally interested in this deal.
Russia can sell LNG to any country in the world, but when selling to a direct neighbor, it's cheaper to build a pipeline. Especially since Russian companies own a complete supply chain required to build land pipelines (i.e. there's zero dependency on foreign companies). Similarly, China can buy LNG from any country in the world, but it's much cheaper to buy pipeline gas. Both countries save money. It's a win-win.