EXPRESS #3 - December 7, 2018
Deepening Ukraine crisis adds more doubt to gas's future in Europe
Oxford Energy has released a paper on Gazprom’s pipeline projects. Gazprom wants to diversify transit away from Ukraine, Nord Stream 2 and Turkish Stream, but their plans are very unlikely to be operating at full capacity by 31 December 2019, when the current transit contract between Russia’s Gazprom and Ukraine’s Naftogaz expires.
Given Russia’s take-over of Crimea and involvement in eastern Ukraine, new contractual arrangements are being negotiated in an atmosphere of unprecedented friction. Failure to reach agreement would result in supply disruptions and undermine even further gas’s prospects of becoming part of Europe’s energy supply future, already under pressure from the EU’s decarbonisation strategy.
“new contractual arrangements are being negotiated in an atmosphere of unprecedented friction”
The paper reviews the progress of transit diversification, the state of the negotiations and possible outcomes, and the implications of no agreement being reached. It considers the prospects for transit of Russian gas to Europe up to 2025 and the implications for Ukraine.
OIES argues that, even if and when the transit diversification projects are complete, Gazprom will require some Ukrainian pipeline capacity. A close look is taken at projected volumes, transport capacities and seasonal flow factors, the investment requirements of the Ukrainian transport system, and the influence on gas market reforms.
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Meanwhile, Russia is looking east to China
A paper titled “Russia’s gas pivot to Asia: Another false dawn or ready for lift off?” comes again from the OIES.
Until now, Russian gas has only been exported to China in small quantities via limited LNG sales. But the paper states: “Recently, though, shipments from the Yamal LNG project have begun, and in December 2019 pipeline sales under the Power of Siberia contract will mark a significant upturn in the gas sector relationship between the two countries. By the mid-2020s Russia will be exporting at least 38Bcma of pipeline gas and 3mmtpa of LNG to its eastern neighbour.”
“pipeline sales under the Power of Siberia contract will mark a significant upturn in the gas sector relationship between the two countries” OIES
Two other pipeline projects may move things forward: Power of Siberia 2 (or Altai) and the Far East pipeline from Sakhalin. “The combined capacity of these two pipelines could be as much as 40Bcma, while Gazprom and CNPC are apparently also negotiating expansion of the original Power of Siberia contract by an additional 5-10Bcma. In addition, Novatek has also discussed further Chinese partnership in its new LNG project on the Gydan peninsula, Arctic LNG-2, where total output is expected to reach 19.8MM tonnes in its first stage by the mid-2020s.”
