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Russia-China Power of Siberia gas pipeline on track for Dec startup: PetroChina


The Power of Siberia natural gas pipeline from Russia to China is on track and gas supply is expected to commence by December this year, a senior executive at state-run PetroChina, China's biggest gas importer and producer, said late Thursday.

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The Power of Siberia pipeline is one of the most anticipated energy projects in Asia, expected to eventually pump 38 Bcm/year of natural gas from East Siberia to China. It has huge implications for China's natural gas supply, LNG import demand and Moscow's strategic pivot to Asian markets.

"Currently the pipeline construction process is right on track and we think we can hit the target to get the supply by December 20, 2019," Ling Xiao, PetroChina's vice president and head of the gas and pipeline business, said at a briefing in Hong Kong.

"According to the agreement, Russia will supply 5 Bcm of gas in 2020 and will increase the annual volume year on year to hit 38 Bcm in 2025," Ling said.

PetroChina's parent company China National Petroleum Corp or CNPC signed the 30-year sale and purchase agreement to supply gas from the Power of Siberia pipeline with Russia's Gazprom in May 2014. Russia committed to start gas supplies from December 20, 2019.

In mid-February 2019, Gazprom chief executive Alexei Miller said during talks with CNPC in Beijing that flows would start even earlier on December 1.


However, PetroChina could be impacted by high costs because the price for importing Russian pipeline gas is higher than current domestic city-gate prices, executives said.

"It is difficult for us to pass through the Russian gas cost to end-users as the government has adjusted the city-gate price several times since 2014 when [both parties] set the import price and signed the contract," Ling said, adding that the company would try to lower losses on gas sales.

PetroChina's imported natural gas sales, including both pipeline and LNG imports, rose 27.5% or 15.75 Bcm year-on-year to 72.89 Bcm in 2018, comprising 48.4 Bcm from central Asia, 3.29 Bcm from Myanmar and 21.2 Bcm of LNG, according to Ling. It sold 159.6 Bcm of gas in the domestic market last year, up 19.6% from 2017, according to the company's annual report.

It incurred a loss of Yuan 24.91 billion ($3.71 billion) in selling imported gas and LNG last year, which was Yuan 960 million more than 2017 levels due to higher volume and prices, Ling said.

Import costs increased by Yuan 21 billion in 2018, for both pipeline gas and LNG, through term contracts and spot buying, because gas prices are linked with oil prices, Ling said.

Brent crude prices averaged $72/b in 2018, nearly $17/b more than 2017. Platts JKM spot LNG price averaged $9.76/MMBtu in 2018 compared with $7.13/MMBtu in 2017.

PetroChina plans to renegotiate prices with central Asian gas suppliers and optimize term LNG imports in summer and winter, while trying to sell spot supplies at a profit, to mitigate its losses, Ling said.


PetroChina's domestic natural gas output will maintain an annual growth rate of 5-6% in the coming years, with a target to produce 150 Bcm by 2025, up from around 120 Bcm in 2020, chief financial officer Chai Shouping said.

In 2018, PetroChina's domestic natural gas production rose 5.4% year on year to 94.16 Bcm, accounting for 58.8% of China's total gas output, according to company data and data from National Bureau of Statistics.

Chai expects unconventional gas to become an important source of gas production eventually.

PetroChina plans to raise its capex by 17.4% year on year to Yuan 300.6 billion in 2019. About 76% of the budget will go to upstream exploration and development, up 16% year on year.

--Eric Yep,

--Edited by Alisdair Bowles,