Gazprom Gives Chayanda the Go!

to 30-billion-cubic-meter Altai gas pipeline, and the “Eastern”, which assumes 38-billion-cubic-meter shipments to China.

Apart from LNG deliveries, Gazprom is considering pipeline gas supplies to China and to North and South Korea. India, Japan and other countries of Asia-Pacific Region could also line up for Russian LNG.

In the long term, some 30 billion cubic meters per year can be produced from Sakhalin deposits, (there is already the Sakhalin – Khabarovsk – Vladivostok pipeline in place), another 35-40 billion cubic meters – from Kovykta field.

Gazprom is yet to clarify its position on developing other Yakutia-based fields that the company received without a tender. Earlier, Vsevolod Cherepanov, deputy head of Gazprom, said that by 2026–2028 total Yakutia gas production might reach 44 billion cubic meters per year.

At the same time, the company leaves open other options – depending on the demand of the target markets, Kovykta gas could go westwards, into Russia’s unified gas supply system (UGSS), or to gas-chemical facilities of Irkutsk region. It is possible that Kovykta gas can enter China from a different direction – by the “Western” route.
Currently, on negotiations with China Gazprom is pressing ahead with the eastern route, even proposing a possible increase in supply from the current 38 billion cubic meters of gas per year.

Risks and Opportunities

As head Gazprom Alexei Miller noted, the Asian market “has the largest capacity in the world and is rapidly developing.” He further stressed, “In the very near future we can create gas export facilities comparable, or even larger, than gas supply routes to Europe.”

Still, negotiations with China are very difficult, according to Raiffeisenbank analyst Andrei Polishchuk. China, says the expert, is tough nut for delivery prices, as it can easily use coal for its energy needs (China’s coal reserves are high).

Sberbank CIB analyst Valery Nesterov holds that Chayanda launch is a risky affair, not in the least because of the uncertainty about LNG market trends. “Also, do not underestimate the competition from Australia, East Africa and the U.S., which, if they become net exporters, will most likely be looking for the same markets as the Gazprom, in particular, India,” says the analyst.

Nesterov also noted that currently in the U.S. gas costs about $3 per million Btu, in Asia – $16-18 per million Btu, in Europe – about $10-12 per million Btu. The analyst estimates that Chayanda gas would cost about $16-18 per million Btu. Nesterov added that potential buyers in Asia dislike pegging of the gas price to the cost of the “oil products basket”. In his opinion, this means price-related risks for the whole project.

Andrei Polishchuk, on the other hand, holds that Chayanda gas production should be cheaper than on the old fields – so, considering future consumption growth, Chayanda project must be launched offset falling production levels at depleted fields. “Eastern Siberia can be developed only if there are new markets,” said Valery Nesterov, adding that all risks should be carefully calculated.

Specifications of Yakutia – Khabarovsk