Gazprom paves way to new China gas deal as sanctions hit Russia
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The gas giant signed a contract for a new pipe to China that would enable 50 bcm/year of extra gas flows.
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Gazprom paves the way to a new China gas deal as sanctions-hit Russia.
As governments around the world sever economic and diplomatic connections with Russia over the country's special military operation in Ukraine and impose heavy sanctions, Gazprom PJSC made a major step toward potentially its largest-ever natural gas supply deal with China.
Gazprom stated in a statement that it had signed a deal to design the Soyuz Vostok pipeline, which will run through Mongolia and into China. Soyuz Vostok will transport up to 50 billion cubic meters of natural gas per year to China if Russia and China strike a new supply arrangement.
Such an agreement with China would also allow Gazprom to construct an interconnector between its westbound and eastbound pipeline systems, thus allowing Russia to redirect gas from sources that currently solely serve Europe to China.
This might reduce Gazprom's dependency on Europe, which is currently Russia's single largest gas consumer.
The pipeline-design contract comes as the European Union and the United States, together with countries like the United Kingdom, Canada, and Japan, exert unprecedented pressure on Russia following its special military operation in Ukraine.
Russia's ability to import essential technology, access global debt markets, and even access much of the $640 billion it kept up as a buffer to protect the economy is being hampered by sweeping sanctions.
While Russian energy exports are unaffected at this point in the conflict, Europe is looking into ways to wean itself off Gazprom's supplies.
Gazprom has been in talks to deliver gas to China via Mongolia for several years.
“Today, the design contract has been signed, this means that the project has moved to the stage of practical implementation,” Gazprom Chief Executive Officer Alexey Miller said of the Soyuz Vostok link. The statement didn’t give any details of progress on supply talks with China.
Gazprom struck a $400 billion, 30-year deal in 2014 to send up to 38 billion cubic meters of gas per year to China through the Power of Siberia gas pipeline, with deliveries beginning in late 2019.
When Gazprom's supplies to Europe were curtailed in recent months, shipments to China were consistently higher than daily contract quantities.
Russia and China struck a smaller gas contract in early February for a 25-year direct supply of up to 10 billion cubic meters per year from Far Eastern fields.
Last Thursday, Russia launched a special operation to demilitarize and "denazify" Ukraine, in response to requests from the Donetsk and Lugansk people's republics for assistance in combating Ukrainian troops' aggression. The special operation is only targeting Ukrainian military facilities, according to the Russian Defense Ministry, and the civilian population is not at risk. Moscow has stated that it has no intention of occupying Ukraine.
