Russia and China are becoming close partners both in the economic sphere and in the foreign policy arena. Between the states large-scale agreements regarding cooperation in the field of business are concluded. These include the gas contract for the supply of blue fuel to China through the Power of Siberia trunk pipeline.
What are the most noteworthy facts about this project? What is the scheme of the planned gas delivery from Russia to China?
Project Summary
The Power of Siberia gas pipeline is supposed to be carried out in China from Yakutia. The largest cities through which it passes are Blagoveshchensk, Khabarovsk, as well as Vladivostok. The Power of Siberia project is one of the top priorities for Gazprom. Corresponding work will be carried out both from the Russian and Chinese sides. The gas pipeline will unite fuel distribution systems in the Irkutsk and Yakutsk gas production centers . It is noteworthy that the name of the project - "The Power of Siberia" - the Russian Federation determined by the results of the competition.
It is assumed that the first section of the pipeline - from Yakutia to Khabarovsk, and then to Vladivostok - will be commissioned by the end of 2017. It can be noted that the gas pipeline route will go along the pipeline route from East Siberia towards the Pacific coast. This will significantly reduce the cost of building the necessary project infrastructure and energy supply.
Gas pipeline characteristics and layout
The Power of Siberia project involves the construction of a gas transmission line with a length of about 4 thousand km. It will be used to remove natural gas, as we noted above, from two production centers at once - Irkutsk and Yakutsk, in the direction of Khabarovsk. It is expected that the gas pipeline will become a powerful incentive for the economic development of not only the Far East, but also the Asian part of the Russian Federation as a whole. This will be possible not only due to an increase in direct revenue and the creation of jobs at gas producing and transport enterprises, but also due to an increase in the level of gasification of settlements and, as a result, opening up opportunities for launching new production facilities. These processes will be further stimulated by budget support, in particular, provided as part of the gas supply development program in the Primorsky Territory.
The map of the Power of Siberia gas pipeline looks like this.
We see that the project implementation scheme involves the coverage of a vast territory. It will also be interesting to study the economic scope of the project.
Economic scale
The Power of Siberia gas pipeline is one of the largest projects in the entire history of the economic development of modern Russia. As you know, a major gas contract was signed between the Russian Federation and China, as a result of which Gazprom was able to enter a new market, which is characterized by great potential. According to some reports, Russia will have to supply about 1 trillion cubic meters of gas to China for a total of about $ 400 billion. For comparison: Russia's PPP GDP is about $ 3,500 billion. Gazprom’s counterparty, the China National Petroleum Corporation, is known to make an advance of about $ 25 billion before fuel supplies begin. The estimated capacity of the gas pipeline is about 38 billion cubic meters of gas annually. The intensity of fuel transportation corresponding to this indicator will be achieved, as expected, within 5 years from the start of the first deliveries.
According to some experts, the Power of Siberia gas pipeline will be brought to full capacity by 2024. Now Russian enterprises are preparing construction sites, as well as importing the necessary materials and equipment. It is estimated that during 2015 about 500-600 thousand tons of equipment will be delivered to the sites. Also in 2015, the construction of the first stage of the gas transmission pipeline is expected to begin.
Contract signing
The contract between the Russian Federation and the PRC for the supply of fuel on the so-called eastern route was signed on October 13, 2014 at the level of the governments of both states. In accordance with this agreement, the key conditions for the partnership between Russia and China in the part of the project were determined, including in the aspect of design, construction, as well as the operation of cross-border zones of the pipeline. The construction of the Power of Siberia gas pipeline was transferred to the competence of two companies - the Russian Gazprom and CNPC (China National Petroleum Corporation).
The signing of a contract between the Russian Federation and the PRC regarding the construction of the pipeline under consideration allowed our country to rely on the diversification of gas supplies. Now, according to analysts, the dependence of Russia's gas exports on sales to Europe is too strong. In addition, due to political differences between the Russian Federation and the West, difficulties may arise with the further development of partnerships in the corresponding direction. Thus, the reorientation of gas exports to China is a step towards the much-needed diversification of supplies. China is a growing market with a developed industry that always needs large volumes of blue fuel. The Russian Federation is one of the few suppliers willing to sell gas to China stably and at affordable prices.
Gas production resources
So, the Power of Siberia gas pipeline will supply fuel produced in the Irkutsk and Yakut centers to the PRC. As for the first resource, it is supposed to produce gas at the Kovykta field. The fuel reserves in it are estimated at about 1.5 trillion cubic meters. As for the Yakutsk center, production will go on the Chayandinskoye field. Its reserves are about 1.2 trillion cubic meters.
Features of the construction of the gas pipeline
Thus, we see how powerful and large-scale, including in terms of the name, “Power of Siberia” is a gas pipeline. Who is building it? Who is the general contractor for this international project?
An interesting fact is that the general contractors of the Power of Siberia gas pipeline may not be involved. At least, this point of view is widespread in the media. It is assumed that the Power of Siberia gas pipeline will be built by small organizations. In this sense, Gazprom, as some analysts note, has changed its tactics - earlier, the Russian gas corporation still chose a leading partner. In the case of a project such as the Power of Siberia gas pipeline, contractors will perform local tasks.
Traditional pattern
The traditional scheme practiced by Gazprom involved the distribution of contracts within the framework of large lots, that is, the leading organization that was involved in the construction of a particular section of the pipeline was determined. For example, the South Stream infrastructure, before it was reoriented to Turkey, was managed by the Stroygazmontazh corporation. The European section of South Stream was to be built by Stroytransgaz. In turn, the Nord Stream project was implemented with the leading role of Stroygazconsulting.
Sanction factor
The settled scheme, according to analysts, is not quite optimal in the current conditions, when sanctions were imposed on the Russian Federation by Western countries. The fact is that these Russian companies also fell under them, as a result of which they cannot import some varieties of the necessary equipment. In particular, these are Caterpillar equipment, as well as welding complexes of the CRC-Evance type, manufactured in the USA.
Warranty Criteria
Another version explaining the revision by Gazprom of its policy with respect to contractors is that for such large-scale projects as the Power of Siberia gas pipeline, the Russian Federation practices bank guarantee requirements. Gazprom may have difficulties with those. The fact is that the largest Russian gas company in 2015 must transfer to its creditors about 174.3 billion rubles. This debt is not considered by analysts as too big for Gazprom, but now the corporation cannot attract long-term loans in case of revenue shortages.
There is evidence that a total of 15 firms will be involved in the construction of the Power of Siberia gas pipeline. Among them, there is the Stroytransgaz company. Among other companies with which Gazprom may conclude contracts are EURACOR, Argus Spets Montazh, Irkutskneftegazstroy, SpetsMontazhProekt.
Estimated costs for the construction of the "Power of Siberia" - about 770 billion rubles. Of these, in particular, about 283 billion rubles will be invested in the economy of the Republic of Sakha.
Project Ratings
So, we studied the main economic indicators of the project. We have also studied the map of the Power of Siberia gas pipeline. What are the assessments of the prospects of the corresponding project among Russian analysts?
In general, experts agree that the Power of Siberia is an example of a successful international partnership. The fact is that this gas pipeline is equally needed by both Russia and China. In the political context, the project, analysts believe, contributed to the further strengthening of allied relations between the two states.
The economic effect is evaluated by experts as extremely positive. Gazprom’s revenue for fuel supplies, as we noted above, will be about $ 400 billion. The relevant regions of the Russian Federation will receive a significant incentive to economic development, both in terms of investment inflows and in terms of building new infrastructure, including industrial.
There is a version that the main consumers of gas in the world in the medium term will be India and China. The Power of Siberia is a project that, in this sense, is completely relevant in terms of correlation with global economic trends. According to some estimates, in 2020 the dynamics of gas consumption in China will reach about 420 billion cubic meters.
By signing an agreement on the supply of blue fuel, Russia and China have opened up opportunities for expanding partnership in border regions. Thanks to the presence of new infrastructure, the Russian Federation will be able to effectively develop new natural deposits, which are rich in Siberia and the Far East. Opportunities will open up regarding import substitution, increasing the industrial production in the region.
The construction of the Power of Siberia gas pipeline is expected to become a positive factor in the development of the Siberian and Far Eastern regions as a whole, including the social aspect. Citizens living in the corresponding parts of Russia will receive new job opportunities, business, and education.
Incentive to invest
The growth of the economies of Siberia and the Far East will determine, as analysts expect, the growth of investor interest in these regions. Moreover, it is calculated that not only businessmen from the PRC, which is located very close by, but also from other states, in particular, South Korea, Vietnam, and Singapore, will conduct activities in the respective territories. A noticeable reorientation of the priorities of domestic investors is expected. Many of them are now investing in foreign projects, and it is entirely possible that their capital will also be directed to the economies of Siberia and the Russian Far East. The sanctions restrictions applicable to Russian enterprises may also contribute to this.