CNPC's Gas Pipeline Approval Gets Russia New Export Market
Russia has found a new export market in the world’s largest energy consumer, China. The nations had signed a natural gas supply deal in May and the recent approval by the government to PetroChina Co Ltd.’s (PTR) parent company, China National Petroleum Corp. (:CNPC), to move ahead with the designing and construction of Chinese end of the China-Russia natural gas pipeline has given momentum to the deal.
CNPC will be designing the Chinese end of the massive 4,000 kilometers pipeline that is anticipated to transport gas worth $400 billion. The Chinese section of the pipeline will start from northeast China's Heilongjiang Province, span across several intermediate provinces and finally end at Shanghai. The pipeline construction is likely to commence in the first half of 2015 and expected to complete in 2018.
The Russian end of the pipeline has already begun construction work on Sep 1. It is being built by the state-controlled energy firm, Gazprom. Russia will expectedly begin gas supply in 2018, which is anticipated to reach about 38 billion cubic meters (bcm) per year.
The deal brings a steady energy source for energy-hungry China, which is struggling with major pollution problems, given its heavy reliance on coal for generating power. The contract will provide a key source of energy to sustain industrial and economic growth.
More importantly, Russia gains a market at a crucial time as European customers slip out of its hand, due to sanctions following the Ukraine crisis. The sanctions forbid European and U.S. oil firms like ExxonMobil Corp. (XOM), BP plc (BP) and Royal Dutch Shell plc (RDS.A) from having any new energy-related transaction with Russia. However, this massive ‘Power of Siberia’ pipeline will provide Russia some relief and provide a new export market, reducing dependence on the European markets that account for most its exports.
The Russian firm mentioned that another contract on the transfer of gas through a more westerly route to China could be inked in November. This signals the intent of both China and Russia to boost ties further.
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