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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Gazprom Eyes Fast-Growing Chinese Market As Its Exports Plunge By 50%

  • Asia has become a priority export destination for Russian energy after the breakup with Europe.
  • Gazprom’s natural gas exports this year have fallen by close to 50 percent to 100.9 billion cubic meters outside the former Soviet Union.
  • Gazprom CEO Miller: China is set to account for 40 percent of global gas demand growth.
Gazprom

Gazprom’s natural gas exports this year have fallen by close to 50 percent to 100.9 billion cubic meters outside the former Soviet Union, Bloomberg reported this week, citing a statement by the giant’s chief executive Alexander Miller. This is the lowest since 2000, the report noted. The drop was the result of a combination of events, including Russia’s reduction of pipeline flows to Europe following the barrage of sanctions the EU directed at Moscow after the latter invaded Ukraine. Another reason for the drop was the EU’s consequent switch to LNG in a bid to reduce its energy dependence on Russia.

In his end-of-the-year address, meanwhile, Miller noted that global gas demand had dropped by 65 billion cubic meters this year, with 55 billion cubic meters coming from Europe. He added that in the future, however, global gas demand is set to grow and Gazprom is preparing for this growth.

China, he said, is set to account for 40 percent of global gas demand growth, which will itself amount to 20 percent from current levels. Positioning itself to benefit from this outlook, Gazprom plans to boost its gas exports to China to 48 billion cubic meters “very soon”, Miller said.

As part of Russia’s energy pivot to Asia, Russia’s president, Vladimir Putin, inaugurated earlier this month the Kovykta gas field in eastern Siberia, a project long in the works, which will supply gas to China. The field has reserves estimated at 1.8 trillion cubic meters and is the largest in eastern Siberia discovered so far.

Related: China Sets The Tone In Oil Markets At Year's End

Asia has become a priority export destination for Russian energy after the breakup with Europe, with China the biggest client Russia has on the continent and India a close second. The energy pivot followed, with a little delay, a political pivot that started ten years ago.

Earlier this week, Russian Natural Resources and Environment Minister Alexander Kozlov said in a TV interview that the government planned to step up oil and gas exploration—especially gas exploration—in eastern Siberia with a view to ramping up exports to Asian partners.

There is also another reason why eastern Siberia oil and gas fields are becoming a priority: currently, most of Russia’s oil and gas are coming from western Siberia, which is not immune from natural depletion. Western Siberian fields are mature ones while deposits in eastern Siberia are yet to be tapped.

As part of this exploration and production move from the west to the east that symbolically reflects the political shift from the West to the East, Rosneft several years ago announced the biggest project in its history—Vostok.

Vostok Oil, in Russia’s Far East, comprises several groups of oil fields holding an estimated 44 billion barrels of oil. Work on the project began in January 2021. The total cost of its development has been estimated at $170 billion over the lifetime of the fields.

Western sanctions have interfered with Rosneft’s plans for the Vostok project, with Rystad Energy forecasting earlier this year that Russian oil and gas investments are set to drop by $15 billion this year and continue falling over the next few years as well. Meanwhile, Trafigura, which had bought a stake in Vostok, sold it after the sanction action began, to a Hong Kong trader, Nord Axis.

Despite this projected slump in investments and the pullout of Western companies from Russia’s oil and gas industry, Gazprom’s CEO sounded an upbeat note about the future. He noted in his speech that Gazprom has been booking a reserve replacement rate of over 1 in the past few years and that some of the deposits Gazprom operates could continue producing well beyond 2100.

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By Irina Slav for Oilprice.com

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  • Rick Rod on December 30 2022 said:
    It will be hard to move gas without pipelines to Asia. Russia is not fooling anyone, it will take a generation to adapt to moving gas to Asia.
  • Mamdouh Salameh on December 31 2022 said:
    Actually Russian pivot towards Asia has started in full blast in 2014 after the United States imposed sanctions on Russia in the aftermath of the annexation of the Crimea. But President Putin turning the gaze towards Asia goes far beyond sanctions. And how insightful he has proven to be.

    Asia is where the future and economic growth are and will be well into the future. That is why Russia and Gazprom are now concentrating their vision and efforts on it.

    China the world’s largest economy based on purchasing power parity (PPP) and the largest energy market offers Russia the largest market for its huge energy exports. Moreover, the economies of China and Russia complement each other in a spectacular way, Russia has everything that China needs and China provides the biggest market in the world for Russia particularly its huge energy exports. Any wonder then that trade between the two countries has grown from $13 bn in 2011 to $150 bn during the first 8 months of 2022. Any wonder also that China alone in 2022 bough 694 million barrels of crude oil (an average of 1.9 mbd), 15.0 billion cubic meters of gas (bcm) and 42 million tons of coal for an estimated value of $100 bn compared with $108 bn being the entire purchases of Russian gas and oil by the EU in 2021.What this is telling us is that China has virtually replaced the European market for Russia’s energy exports.

    China is set to account for 40% of global gas demand growth. Positioning itself to benefit from this outlook, Gazprom plans to boost its gas exports to China to 48 billion cubic meters very soon.

    Ten days ago, President Putin inaugurated the Kovykta gas field, the largest in eastern Siberia with 1.8 trillion cubic meters of gas, located strategically to allow Russia to increase gas exports to China.

    There is a reason why Easter Siberian gas fields are getting development priorities. Western Siberian fields are now mature while deposits in eastern Siberia are yet to be tapped.

    This exploration and production shift coincides with Russia’s political shift from the West to the East with Russian oil giant Rosneft starting its biggest project in its history—Vostok. The Vostok in Russia’s Far East, holds an estimated 44 billion barrels of oil. Work on the project began in January 2021. The total cost of its development has been estimated at $170 billion over the lifetime of the fields.

    China will benefit further from the building of Spirit of Siberia 2 which will carry gas produced in the Kovykta gasfield and also from the use of the Northern Sea Route (NSR) which will cut shipping time by half and will achieve a transportation target of 80 million tons of crude oil cargo by 2024 (equivalent to 1.6 million barrels a day (mbd) of crude oil) heading to China.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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