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Russia To Supply More Gas To China Via New Pipeline

Gazprom and China National Petroleum Corporation (CNPC) have signed a new deal under which the Russian gas giant will deliver natural gas to China via the Far Eastern route, Gazprom said on Friday as China and Russia are strengthening their energy cooperation.

Gazprom and CNPC signed a long-term Sales and Purchase Agreement for natural gas to be supplied via the Far Eastern route, which will boost the amount of Russian gas supplies to China by 10 billion cubic meters annually, the Russian gas giant said on Friday.

“The signing of this document is an important step towards further strengthening the mutually beneficial cooperation between Russia and China in the gas sector,” said Gazprom, which expects total Russian pipeline gas supply to China to reach 48 billion cubic meters per year, including deliveries via the Power of Siberia gas trunk line.

The agreement for the new pipeline, expected to be operational within three years, will be settled in euros, an industry source in Beijing told Reuters.

Russia is already sending natural gas via pipeline to China through the Power of Siberia pipeline, which became operational at the end of 2019.

“This is already a second contract to be signed for Russian gas supplies to China, and it is indicative of the exceptionally strong mutual trust and partnership between our countries and companies. Our Chinese partners from CNPC have already seen for themselves that Gazprom is a reliable gas supplier,” Gazprom’s CEO Alexey Miller said, commenting on the deal announced on Friday.

While Russia is bolstering its energy ties with China, it continues to be at odds with the West over Ukraine, while Gazprom’s gas exports to Europe have plunged in recent months.

Despite record-high natural gas production, Russia has not been sending much above its contractual obligations to Europe this winter season.

At the same time, the United States and the EU are scouring the world for additional LNG supply that could be sent to Europe in case the Russia-Ukraine crisis escalates into a conflict.  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on February 05 2022 said:
    The new deal between Gazprom and China’s CNPC for the supply of additional 10 billion cubic metres annually (bcm/y) of Russian piped gas to China comes on top of an already existing mega deal to supply 38 bcm/y for the next thirty years via the Spirit of Siberia gas pipeline.

    This expanding energy cooperation between the two countries has huge economic and geopolitical implications for the United States and the EU. For one, it means that China, the world’s largest economy based on purchasing power parity (PPP) is wedded to Russia the world’s superpower of energy. As a manifestation of the growing close relations between China and Russia, China announced yesterday that it opposes NATO’s further expansion towards Russia with Ukraine in mind.

    Moreover, the energy balance of power between the EU and Russia has shifted decisively towards Russia. By increasing its gas exports to China, Russia is telling the EU that it isn’t dependent on the European gas market for its gas exports. It has a far bigger market in China.

    The entire LNG exports from the United States, Qatar and Australia could hardly replace the almost 200 bcm/y piped by Russia to the EU. Moreover, the bulk of Qatari, Australian and American LNG exports is already contracted for in the Asia-Pacific region. To this could also be added that the global LNG market is currently very tight with rising demand in Asia particularly China and that Russian piped gas is far cheaper than LNG.

    Furthermore, Europe has a limited LNG import capacity. This makes ramp-ups of LNG imports quite useless particularly if they are needed to replace Russia’s almost 40% share of the European gas market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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