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Gazprom resumes talks on natural gas pipeline to South Korea via North Korea, Iran upstream

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Gazprom resumes talks on natural gas pipeline to South Korea via North Korea, Iran upstream

Moscow — Gazprom has renewed talks with South Korea on a potential natural gaspipeline from Russia's Far East via North Korea in light of the improvedpolitical situation in the region, while it also expects talks with China ongas supplies to be completed by the end of the year, company officials saidFriday.

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* Expects to complete talks with China on Far Eastern gas route byend-2018

* Says Power of Siberia on track for Dec 2019 launch; talks on WesternRoute continue

* Considers Iran LNG participation ; Iran-Oman, Iran-India-Pakistanpipelines


Gazprom is also starting talks with Iran on potential field developmentthere -- despite the renewed sanctions threat against Iran -- as well ason potential markets and transportation routes, including the Iran-Omanpipeline and Iran-Pakistan-India route, for gas from the four Iranianprojects it has its eye on, they said.

Following the talks between US President Donald Trump and North Koreanleader Kim Jong-un and improving relations between North and South Korea,the discussions about a potential pipeline through both Koreas are backon the table after years of being suspended, deputy chairman of Gazprom'smanagement committee, Vitaly Markelov, told a press briefing.

"Today, the political situation is somewhat different. The South Koreanside approached Gazprom about the revival of this project. A series oftalks took place on this. These talks are continuing. We can't sayanything further, but we are renewing such talks with the Korean side,"Markelov said.

South Korea's state-run Korea Gas Corp. (Kogas) signed a preliminaryagreement with Gazprom in 2008 to buy 10 Bcm a year of gas for 30 yearsbeginning 2015. Under the $90-billion deal, the companies agreed to pushfor a pipeline across North Korea, and signed a relevant memorandum ofunderstanding with Russia, but Gazprom soon shelved the plans because ofthe geopolitical risk.

Gazprom's statement of renewed talks on the project follow RussianPresident Vladimir Putin signaling earlier this month support thedevelopment of new economic projects with North Korea, with a focus oninfrastructure projects, primarily a gas pipeline and other energyinfrastructure.

South Korea is the second-largest buyer after Japan of LNG from theGazprom-led Sakhalin-2 LNG plant on the Pacific coast. The country bought17% of the 11.49 million mt of LNG the plant produced last year,according to Sakhalin Energy, Sakhalin-2 operator.

Gazprom so far exports pipeline gas only to Europe and Turkey, but hasplans to send its first pipeline gas to China via the Power of Siberiapipeline, which Markelov said with "no doubt whatsoever" would launch onDecember 20 next year as planned, under a 30-year supply contract withCNPC for 38 Bcm/year.


CHINA

Gazprom has, meanwhile, been holding talks with China on building apipeline to send 8 Bcm/year of gas from the Far East, with the resultexpected by the end of the year, Gazprom Export Director General ElenaBurmistrova said without specifying whether the project foresees usingthe same reserves as the potential pipeline to South Korea.

"At the moment, talks continue with CNPC on gas supplies along the FarEastern route. We cannot give a final time frame for such a pipeline. Butthe aim is preferably to complete [the talks] by the end of 2018,"Burmistrova said.

These expectations have been sparked by China showing "real heightenedgas demand," Gazprom deputy CEO Alexander Medvedev said, adding theprospects for demand there meant talks were also being continued onanother pipeline to China, the so-called Western Route, expected to carry30 Bcm/year of West Siberian gas to Northwest China over 30 years.

"The fact that there are prospects is pretty obvious. The question is:When will these prospects start turning into specific agreements?"Medvedev said.

While Gazprom plans to use the Chayadinskoye and Kovyktinskoye fields --to be launched in 2019 and 2023, respectively, and produce 25 Bcm/yeareach at plateau -- as the reserve base for the pipeline, its reservepotential in East Siberia and the Far East is "huge" and constantlygrowing due to new geological exploration, Markelov said.


MIDDLE EAST

The company is also eying expanding its reserve base abroad and isstepping up talks on its participation in four Iranian fields -- Kish,North Pars, Farzad A and B -- under a memorandum with the NationalIranian Oil Company, Markelov said.

"According to the memorandum, we were to prepare our proposals based onthe financial-technical analysis presented by the Iranian side. Today, wehave completed this work, and we are starting a series of talks with theIranian side on these four projects. Based on this memorandum, we have tocarry out analysis, hold talks, consider the contract conditions and willtake further decisions accordingly," he said.

Medvedev shrugged off concerns over the potential renewal of US sanctionson Iran later this year by saying: "If you can't stand the heat, get outof the kitchen!" but added that Gazprom would assess all the technical,economic, and sanctions risks.

As the company is looking at monetization options and supply routes forfuture Iranian gas, it is considering deliveries via the Iran-Oman or theIran-Pakistan-India pipelines -- the latter is still awaiting signaturesfrom Pakistan and India -- as well as gas liquefaction, Markelov said.

Iran has offered Gazprom participation in the Iran LNG project, on whichthe parties have signed a memorandum, he said, adding that the companywas only carrying out an audit of the project, after which it woulddecide on any potential involvement.


--Nastassia Astrasheuskaya, nastia.astrasheuska@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com