"Strength of Siberia" Gas Pipeline To Be Built Only After Signing Agreement With China

By Lada Ponomareva, July 19, 2013

Deputy chair of Gazprom Vitaliy Markelov told journalists that construction of the Strength of Siberia gas pipeline will only begin after agreements are reached on gas supplies to China.

At the beginning of this week, Vedomosti, one of Russia's most influential and respected dailies, reported that Gazprom could begin construction on the pipeline from Yakutiya to Vladivostok as early as November of this year. The pipeline, dubbed the Strength of Siberia pipeline, will have a capacity of 60 billion cubic meters of gas a year, a volume Russia plans to sell to China. However, the Russian company still does not have a signed contract with the Chinese side.

Commenting on the information published by Vedomosti, analysts from VTB Capital said they believed that beginning construction on the Strength of Siberia pipeline before relevant agreements on gas deliveries to China were signed would have a negative impact on the market. Gazprom's capital expenditures for the project are estimated to be at least $28-32 billion (the company itself plans to invest $25 billion into the project). Without a clear picture of where the gas will be delivered from Gazprom's East Siberia fields (Kovyktinskoye and Chayandinskoye), the project could serve to undermine the company's value, experts said.

Markelov did however assure journalists that the Russian gas monopoly would in any case sign a contract with China and only after that would it begin any activity on building the new pipeline: Gazprom always adheres to the principle, "Sell gas first, then produce and transport it", he said.

"The Strength of Siberia pipeline is a large project requiring serious investment and it will not be an exception to the above rule", Markelov said continuing, "We are now designing sites for production facilities in Yakutiya and for a line section of the pipeline. We will begin building it only after reaching an agreement on the main conditions for delivering the gas to China and signing contract documents".

A contract with China is expected to be signed in September of this year, according to a statement made in June by Gazprom CEO Alexey Miller during a meeting with pipe manufacturing companies in St. Petersburg.

Copyright 2013, Oil&Gas Eurasia.