Gazprom focus to shift from pipeline building to flow dynamics

The addition of Power of Siberia, Nord Stream 2 and TurkStream represents a massive expansion of Gazprom's export capacity
The addition of Power of Siberia, Nord Stream 2 and TurkStream represents a massive expansion of Gazprom's export capacity

For the past few years, Russian state-controlled gas giant Gazprom has been sharply focused on completing threemulti-billion dollar pipeline projects -- all of which are heavy with geopolitical implications, S&P Global Platts writes in the article Feature: Gazprom focus to shift from pipeline building to flow dynamics. The 38 Bcm/year Power of Siberia line to China is already flowing gas and the startup of the 31.5 Bcm/year TurkStream line is imminent. So Gazprom only has to complete the construction of the final kilometers of the 55 Bcm/year Nord Stream 2 pipeline to be able to draw a line under the immense construction effort of recent years -- the cornerstone of its investment strategy.

US sanctions last week saw principal pipe-layer Allseas suspend operations, but Russia is likely to be able to complete Nord Stream 2 itself later in 2020.

Spending an estimated Eur66 billion on the three projects, Gazprom clearly saw money as being no object to achieving its goals -- be they economic, geopolitical or both.

"Already the largest producer and exporter of gas in the world, Gazprom is now solidifying its position as the most important player in global gas markets for years to come," S&P Global Platts Analytics' managing analyst James Huckstepp said. "The addition of Power of Siberia, Nord Stream 2 and TurkStream represents a massive expansion of Gazprom's export capacity," Huckstepp said.

The realization of the Power of Siberia is arguably one of the most significant developments in the global gas market in recent years, cementing the growing ties between Russia and China in the energy sector. The pipeline marks a significant shift in energy dynamics in the region -- giving Moscow a major new market forits vast gas reserves and helping Beijing to diversify further its gas import mix. The resource base is in East Siberia -- so does not eat into the reserves Russia uses to supply Europe. And for China, importing up to 38 Bcm/year through the new Russian pipeline means less dependence on LNG imports. For Moscow this is strategically important given the ongoing US-China trade dispute which has seen US LNG supplies to China come to a grinding halt.

European pipelines

The rationale justifying the other two big infrastructure projects -- Nord Stream 2 and TurkStream -- is a little more murky. Gazprom has said they offer Europe added gas supply security at a time when coal and nuclear face very uncertain futures.

But critics say the pipelines are designed purely to eliminate Ukraine as a transit country for Russian gas. The numbers do add up: Nord Stream 2 plus TurkStream gives Gazprom an additional 86.5 Bcm/year of export capacity to Europe and Turkey -- almost exactly the volume of Russian gas that transited Ukraine last year (86.8 Bcm).

But delays to Nord Stream 2 -- first caused by Danish dither over a construction permit and then by US sanctions -- plus a thawing of tensions between Moscow and Kyiv saw the two sides agree on a new five-year transit deal last week in Minsk.

Nord Stream 2 in particular has come in for intense criticism, with opponents from Washington, Brussels and eastern Europe saying it would concentrate too much of Europe's gas supply on one source and one route. Any future "technical" problems with the route that might happen to coincide with Russian pressure on Europe inan unrelated political arena could represent a risk to the 110 Bcm/year Russian gas export corridor to Europe.

In early December, Russian President Vladimir Putin slammed Bulgaria for "deliberately delaying" the construction of its part of the pipeline to take TurkStream gas into southern and central Europe. Bulgaria started building its 474 km section of the TurkStream expansion in October after delays caused by an appeal against the award of the key construction contract to a Saudi-led consortium. "What we are seeing is that despite numerous assurances and numerous requests for Russia to supply gas to Bulgaria via Turkey, Bulgaria is deliberately delaying the implementation of the project on its territory," Putin said. "This is strange and disappointing. I would like to say that straight out, publicly," he said. "Bulgaria's leaders have asked for TurkStream many times, at any cost, after they ruined South Stream. But evenin this case they were in no hurry. If the Bulgarians do not want it -- I mean the Bulgarian leaders rather than theBulgarian people -- we will find other ways of delivering on our potential in the south of Europe."

Clearly, then, the completion of the three pipelines will not be the end of the story. In a way, it is just the start. From now, all eyes will be on the flow of gas and how the pipelines play into that.

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