Russia shifting to East

  by Ewelina Łukasik-Morawska, Engagement Manager at GES

The Power of Siberia pipeline
The Power of Siberia pipeline

At the beginning of July, I joined a Gazprom field trip to East Siberia organised for representatives of the investment community. A wide number of topics were discussed during the event, with the prospect of Russian and Chinese cooperation being undoubtedly the leading one.

For the last two years, Russia has been reorienting its economy toward China and the recent decision by western countries to uphold economic sanctions might accelerate the process. China seems a perfect candidate to limit Russia’s dependence on western markets and to secure markets for energy resources, capital and technology. Trade between Russia and China grew 3.6 percent in the first quarter of 2016 compared with the same period last year. China’s exports to Russia are dominated by electric and labour-intensive goods, while imports from Russia are mainly oil, gas and iron ore. Without doubt, the trade of energy resources between the two countries plays a crucial role, but attempts to meaningfully increase the volume of trade have not met Russia’s expectations yet. Still, access to Russian natural gas is becoming increasingly important for China as it tries to reduce its dependence on coal and address raising concerns about pollution in big cities.

Roundtable discussions held during the event focused on the prospects of the Russian and Chinese gas market and a need for well-designed structural reforms in the oil and gas industry. The recent economic slowdown in China has not had an impact on energy demand, which is still increasing and thus putting pressure on supply sufficiency and reliability. Consequently, environmental issues have risen on the Chinese government’s agenda, with air, water and land pollution being included into energy policy decisions. China has pledged to reduce its coal dependence, a major source of air pollution and greenhouse gas emissions, and aims to raise its gas consumption to 360 billion cubic metres by 2020.

The trip participants had also a chance to visit an as-yet undeveloped hydrocarbon resource field, the Chayanda field, and the Power of Siberia pipeline, which will bring gas from the Yakutia and Irkutsk gas production centres to domestic consumers in the Russian Far East and to China. Gazprom plans to apply low-staffed technologies to control and monitor equipment on the field and to operate automatic gas production and treatment units. The company has signed a contract to supply 38 billion cubic metres of gas a year to China over 30 years via the Power of Siberia pipeline, although initially the volumes will be smaller.

China’s gas consumption will grow with continued environmental pressure, as it seeks to reduce its reliance on coal and diversify into gas, renewables and nuclear power. However, although the outlook for gas in the emerging Chinese energy economy looks promising for Russia, gas continues to face cost challenges. Will Russia be still up to the challenge?

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