The recent decision made by President Vladimir Putin to authorize the start of design, survey work for the “Power of Siberia 2” pipeline to China, demonstrates confidence and commitment of the Russian leadership amid growing anxieties prevailing in the world today.
Referring to the head of Gazprom Alexey Miller, the volume of deliveries via the pipeline can reach up to 50 billion cubic meters (bcm) of gas per year.
What is the importance of this project for Russia and why now?
It is likely that a post-pandemic boost of economic activity will lead to stiffer competition, which requires Russia to use more flexible strategy in order not only to maintain existing export volumes, but also to increase them.
This is particularly true for the two largest gas markets – Europe and China.
Today, the EU states are the main importers of Russian gas.
According to Miller, in 2019, Russia delivered 199.3 bcm to the European market. This is slightly less than in 2018, which was a record-braking year with 201.8 bcm, but its highest share (35.6 percent) among other suppliers was maintained.
However, there are some factors that may affect Russia's position on the European market. One of them is the growing supply of liquefied natural gas (LNG) from the US.
Based on data from the US Energy Information Administration (EIA), since November 2019, the US ranks first in terms of LNG supplies to Europe. As of February 2020, it continued to maintain this position.
Although the volumes of Russian pipeline gas are nearly three times more than the total supply of LNG to the EU market from all world producers, the growth trend in the share of LNG in the European market continues.
Furthermore, as a result of the past winter, which was mild, European gas storage facilities were 60 percent full as of March 1, 2020, which is the highest level ever recorded at the beginning of March, according to the EIA.
All this may mean that in the near future, gas demand in Europe will be very slight. In the meantime, there is a huge potential for additional gas imports in China. All indications are that the gas consumption there will only grow in the future.
Given these circumstances, the construction of the "Power of Siberia 2" pipeline will help Russia achieve two major goals at once.
The first goal is to add about 50 bcm to 38 bcm of the already launched "Power of Siberia" pipeline, thus radically increasing Russia’s share in Chinese imports and ensuring, as in Europe, leadership in the second largest gas market.
Secondly, Russia has another, perhaps no less important goal than “conquering” the Chinese market: to interconnect the separated gas transport infrastructure of Eastern Siberia and the European part of the country into a single system, where the "Power of Siberia 2' pipeline should become a key link.
If this happens, Russia will be able, by using the reverse pumping, to control gas flows depending on demand in the world's two largest gas markets.
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