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Tech Talk – China, Russia and East Siberian natural gas

Tech Talk – China, Russia and East Siberian natural gas thumbnail

The recent agreement between Russia and China for the sale of some 38 billion cu m of natural gas a year for 30 years, at a reported price of $400 billion ends a long-going negotiation between the two countries over the price of that supply. (Which works out at roughly $10 a thousand cubic feet, just over double current US prices). The price apparently includes some $25 billion to help with construction of the pipelines that will start feeding gas into the Chinese networks within four years. It is less than the price of LNG in the Pacific, and thus will likely lead to market adjustments for that product.

Figure 1. Potential interconnections to bring Russian gas into China (Washington Post )

It is equally of interest to see where the other ends of the potential pipelines lie, since this locates the natural gas fields that will be used to provide the supply. Looking at the distribution of pipelines and fields, the current preponderance of connections into Europe is hard to miss, at the same time as is the large gap in development in the Eastern side of the country.

Figure 2. Natural gas basins in Russia (Oil Peak )

Thus while the potential connection from Urumqi to Gorno-Altaisk allows the Chinese pipeline into a feed from the network that supplies Europe, that market is not going to go away. Yet the two towns are just 560 miles apart and the connection has been known as the Altai project, or Western connection, since it was first planned over 10 years ago, extending a new pipe up towards Yamal and the basins that feed Europe.

Figure 3. The Altai pipeline project (Gazprom )

Developments that reach up into Eastern Siberia, above Lake Baykal and Mongolia into the fields of Kovyktinskoe and Chayandinskoye through the “Power of Siberia” pipeline will allow gas from those fields to also feed Western China.

Figure 4. The connecting fields and pipelines for natural gas from Eastern Siberia (Gazprom )

The gas fields will feed into gas production facilities in Irkutsk and Yakutsk with oil production scheduled to start from Chayandinskoye this year, and natural gas production to follow by 2017. The field is expected to yield 25 billion cu m of natural gas and 1.5 million tons of oil a year at full production, and is estimated to hold 1.2 trillion cu m of natural gas. Kovyktinskoe was licensed to Gazprom in 2011 for exploration and production and is estimated to hold natural gas reserves of 1.5 trillion cu m. Smaller local fields at Bratsk and Chikanskoye have been developed since 2007, with the gas being used locally to supply the region.

Figure 5. Developing natural gas fields in Eastern Siberia (Gazprom )

These two fields alone therefore seem capable of meeting the current sales volume that is to be needed for China, given that the time to delivery is some four years, and both fields are anticipated to be on line, with the gas production facilities, within three years.

Pipeline construction is already underway. The “Power of Siberia” will initially connect into Vladivostock, taking the natural gas to the higher demand industrial Eastern China, but likely the additional funding that China is now providing will also help the Westward expansion to the Western gateway.

Figure 6. The Power of Siberia natural gas pipeline as planned. (Gazprom )

The natural gas pipeline is being routed along with the East Siberia – Pacific Ocean (ESPO) oil pipeline to simplify logistics, the second section of which was opened by President Putin at the end of 2012, a year ahead of schedule. The two sections will have a capacity of handling 80 million tons of oil a year (roughly 1.6 mbd) as supplies increase from the different fields to achieve that target. (The largest current contributor is the Vankor field producing slightly more than 500 kbd).

Yorubcheno-Tokhomskoye is expected to come on line in 2017, reaching full production of around 100 kbd by 2019, as the field develops the natural gas associated with the field will also be brought into the network.

There is anticipated to somewhere around 60 trillion cu. m of natural gas in Eastern Siberia (about 23% of the Russian reserve in 2009) and as this is only now being developed and the infrastructure put in place, it can be expected to last for some considerable time.

So far I have not mentioned the reserves that are now on line at Sakhalin Island. Gazprom built the Sakhalin–Khabarovsk–Vladivostok pipeline in 2011and this carries the natural gas down to Vladivostok, and thence largely into China and other Asian markets. The island also has an LNG facility which supplies that fuel to Japan and North Korea.

Figure 7. Natural gas pipeline from Sakhalin Island (Gazprom )

The pipeline is intended to carry up to 30 bcm per year of natural gas from Sakhalin fields, particularly those offshore.

Given the size of the fields that are thus available to Russia and that will feed into pipelines that will be in place at the time called for in the new agreement it is clear that the new market will not likely require any input from the fields that are currently supplying Europe and other markets.

As industries switch out of coal and into natural gas, however, a change driven partly by environmental and partly by cost considerations, so the demand for natural gas may potentially increase significantly. (As a minor indication of this the primary fossil fuel at the university in town is now natural gas and the coal fired plant just closed). There is less capacity to store natural gas than other fuels, which can raise some concerns over available supply in particularly cold days of the year. Such factors may change the situation somewhat, but realistically I would suspect that natural gas will play an increasing role in global fuel supplies for at least another decade.

Bit Tooth Energy

21 Comments on "Tech Talk – China, Russia and East Siberian natural gas"

  1. Davy, Hermann, MO on Tue, 27th May 2014 6:44 am 

    Good Luck Russia and China building your vast pipeline network in hostile unforgiving terrain. Good luck with the huge capex needed to complete this vast pipeline network. Both China and Russia are basket case BRICS with huge problems on their plate. Russia is entering a recession and has an oil dominated economy making any world downturn very problematic for oil prices. Russia is engaging in costly political and military adventures and policies it can ill afford. This is especially true when China’s hard landing comes with barely 3% growth doing a knock on effect to the rest of East Asia destroying oil prices from demand destruction. The China Ponzi economy is set to implode and it is debatable how much of this expensive gas plan it will be able to afford. China will probably have to settle with its coal further killing its citizens in toxic smog. These two basket case Brics may succeed in some of this effort before BAU crashes but it is highly unlikely this grand plan will amount to much. It will be another example of China’s grand plans from a centrally planned quasi capitalistic system rotten to the core with corruption and casino economics. These grand plans have resulted in ghost cities and huge overcapacity in heavy industry. What a waste of world resources on a western way of life that is now apparent will destroy the world. Mother nature is saying “Thanks China for drinking the poison Kool Aid we can now rid the planet of humans with your development.

  2. rockman on Tue, 27th May 2014 11:06 am 

    BTW no one, including the Chinese and Russians, know how much will be paid for the NG. The $400 billion is just a throw down number they made up. The price will be benchmarked to the price of oil. The exact formula is a trade secret. Which is essential how all long contracts, including LNG, are structured.

  3. J-Gav on Tue, 27th May 2014 11:12 am 

    Yeah Rock, that’s the way it’s always gotta be. Pull a number outta yer backside to get the damn contract signed.

  4. Juan Pueblo on Tue, 27th May 2014 12:11 pm 

    I believe this deal will proceed smoothly and foresee the Russians and Chinese closing a deal for a pipeline in the West and another long term gas contract in a couple of years. This deal makes a lot of sense for both countries.
    I also think that relations between China and Russia will keep improving in the coming years as the USA keeps pushing them together. Sun Tzu says that my enemy’s enemy could become my ally. I like Sun Tzu, he was a smart dude.
    Davy, I don’t consider BRICS nations to be more of a basket case than we are in the USA and Western Europe.

  5. Northwest Resident on Tue, 27th May 2014 12:25 pm 

    I will be amazed if this Russian/Chinese NG project ever get to the point where the Chinese are actually buying and using the Russian NG. The article states:

    Yorubcheno-Tokhomskoye is expected to come on line in 2017, reaching full production of around 100 kbd by 2019.

    That is three to five years into the future — a LOT can go very wrong in the next 3 – 5 years that would stop this proposed project dead in its tracks.

    But hey, the music is still playing, so everybody has to keep dancing — to keep up appearances if for no other reasons.

  6. Davy, Hermann, MO on Tue, 27th May 2014 12:42 pm 

    True Juan but many others on this board won’t acknowledge the Brics as basket cases they are and destine to be. The US is at PEAK absurdity there is nothing good going to come of that. The problem for me is we have idiots here who are rabid anti American without concern for the truth only propaganda. I readily encourage US criticism. The US is a mess and a danger to the world in the direction it is heading. Yet, these ideologue idiots act like there is going to be a new Bric world hegemony and or a golden age for the East. This talk becomes normalizing and accepted as truth if no rebuttals are made. Brics are screwed because they got in the game too late to fully develop before the collapse comes. The global system is not going to change until it collapses. We are in the middle of tectonic shifts to the global economy and political system which will be its death rattle. So Juan we are all screwed together. We are all working on a global economic civil war. We are toying with WWIII. We are all making too many babies. We are all shitting in our nest. We have a few short years and it will be time to pay the piper and the piper is reality.

  7. Davy, Hermann, MO on Tue, 27th May 2014 12:54 pm 

    N/R, my thoughts exactly! But try to tell that to the Bric lovers and the misguided global MSM.

  8. Juan Pueblo on Tue, 27th May 2014 12:54 pm 

    I couldn’t agree more, Davy. I could have written every one of your words. We are in complete agreement on these points.

  9. Juan Pueblo on Tue, 27th May 2014 1:05 pm 

    Davy and NR, I have been waiting for everything to collapse for decades, since I can remember. I have been amazed again and again at how resilient the systems involved are in spite of their fragility and essential incoherence. I have also been amazed by people’s capacity to ignore and deny all these problems, particularly, overpopulation and resource limits.
    We will keep fighting for growth as a species until our last breath. I fear the systems will keep adapting as needed even as collapse occurs.

  10. Northwest Resident on Tue, 27th May 2014 1:26 pm 

    Juan Pueblo — If you have been waiting for decades, then your long wait seems to be coming to an end. While you are correct that the (economic/global trade) systems have proven to be remarkably resilient, we are now finally approaching the point where those systems are running into hard physical realities that cannot be overcome. All those systems run on energy, and we are already a long ways down the backend curve of the energy obtained from energy invested equation. That’s hard physical reality number one. Next, the only thing propping up the global economy is consumerism — but we are running out of things to consume due to productions costs are too high, consumers don’t have enough money to buy those products and anyway the materials used to manufacture those products are becoming increasingly scarce. Next, rapidly increasing population worldwide is running into global food production limits, fast. And finally, we can’t forget the hardcore reality of climate change and global warming, as we teeter on the brink of causing runaway climate change and irreversible global warming feedbacks, the US Military and no doubt plenty of elites are no doubt realizing that we can’t keep pumping all that pollution into the air for much longer. There are other hardcore physical realities as well, which is no secret to you. Point is, it is all coming to a point. These physical limitations were always there, but now they are being pushed to the limit and the breaking point is very near, resilience or no resilience, something has got to give.

    On another note, I find it interesting that Obama is bringing the Afghan conflict to an end, and that about one hundred thousand highly trained, very experienced and tightly disciplined troops will be back on American soil with their (crowd control, anti-insurgency) equipment by the end of 2014 — just in time for…? Fill in the blank.

  11. Northwest Resident on Tue, 27th May 2014 1:41 pm 

    Davy — The so-called “Bric lovers” who post on this forum are blinded by their hatred for America. Like all people blinded by irrational hate and anger, they are incapable of being objective. Information and points of view that tend to support their hate and anger get ingested un-filtered and integrated into their belief system. Information and points of view that tend to invalidate their hate and anger never make it through the filter — they bounce off like a Ping-Pong ball hitting a brick wall. Point is, don’t expect these Bric lovers to be logical, not even close. Expect them to constantly spew hatred, anger and completely illogical nonsense, and you won’t be disappointed…:-)

  12. Juan Pueblo on Tue, 27th May 2014 1:47 pm 

    NR, we agree on EROEI and hard limits, feedbacks, CC, AGW, and consumption.
    I also agree that at some point things will get bad here and the government has been preparing since Bush was there at least.
    I think the only difference in our perspectives on these points is that I think this will drag out longer than you do, but not by much. I am aware that we could have a major economic reset any day now, but the energy and ecologic crises are a gradual process. If the economy collapses first, the government and, if necessary, the military would get involved in energy and food production industries and their distribution, and they will keep that going for as long as possible with no regard whatsoever for the environmental cost. I figure they have to have contingency plans for that.

  13. Northwest Resident on Tue, 27th May 2014 2:02 pm 

    Juan Pueblo — I agree with everything you wrote, almost. If the economy collapses, I don’t believe that the government and military will be able to step in and keep the JIT systems, the global trade or other economically vital systems going — at least, not to the extent needed to more or less keep BAU trudging along. I do agree that the government(s) and military have plans to deal with economic collapse and those plans probably do include implementing a command-control style economy. But that (I believe) will be just enough to meet the vital needs of the military and the government. All the hundreds of millions of cars would run out of gas, because without a completely functional global economy and credit/delivery system in place, the complexity needed to deliver fuel to vehicles worldwide crashes, and along with it, the world as we know it. But yeah, it could drag out a long time, who knows. I just don’t see how once that critical level of complexity collapses.

  14. GregT on Tue, 27th May 2014 2:07 pm 

    Many of those systems that we will all be adapting to, are already in place in many countries. Like socialism, military dictatorships, Marshall law, substandard wages, hunger, disease, and lack of education, healthcare, personal transportation etc.

    Like I have said many times before, those that have much, have much to lose, that that have little, have little to lose. Their lives are not going to be affected nearly as much, as ours will be in the west.

    The days of the two car garage, in the house in the suburbs, with a white collar career, are coming to an end.

  15. Davy, Hermann, MO on Tue, 27th May 2014 2:38 pm 

    Agreed here with N/R and Greg on possible collapse scenarios mentioned above.

  16. baptised on Tue, 27th May 2014 2:58 pm 

    I would like to put GregT’s 2:07 comment in what I think is a parallel event. One set of my grandparents lived in a rural hilly farm land. They grew their on food or bartered with neighbor’s. When I ask them about the great depression they said what depression?

  17. GregT on Tue, 27th May 2014 6:01 pm 


    Ask your grandparents what it would have been like, if coal and oil were completely removed from their lives. That should draw a pretty good picture of what we will be facing in less than 20 years, or maybe even less than 10.

    My parents grew up during the depression, and they often talk about how poor they were, but they still had access to coal for heating and cooking, and cheap gasoline to run the farm equipment, and to drive into town for staples. Industrialization was also starting to ramp up, and things continued to get easier throughout their lives. For us, our lives will continue to become more difficult.

  18. Harquebus on Tue, 27th May 2014 6:50 pm 

    If Russia decides to play games with the Chinese the way they have played the Europeans, real trouble will result.

  19. Makati1 on Tue, 27th May 2014 8:07 pm 

    I read all the comments and it is obvious where the authors live. Their indoctrination is complete. If you cannot see that, then you are lost or you have too much invested in the system to ever doubt it will collapse in your lifetime.

    I see the world splitting into two parts. The dying West, that is grasping at straws to keep it all going until they can rule the world, and the growing East and South that are banding together to make sure the West loses.

    How many more years it will take is only dependent on none of those black swans deciding to land. If you have ever watched a flock of birds, you know that they will all land almost at once when the leader decides where and when. There is a huge flock of those black swans circling…

  20. Davy, Hermann, MO on Tue, 27th May 2014 8:33 pm 

    Poor Mak, living in the overshoot East where collapse will be the worst with the least amount of food per capita and little good clean water. Your world will collapse around you Mak with your 12Mil neighbors that will be hungry, cold, and angry. These folks will not care about your comments on the evil West. They will just grab your food and goods and kick you in the gut. Sorry you chose such a losser location

  21. Makati1 on Wed, 28th May 2014 3:26 am 

    I also just read an article about Russia negotiating with North Korea to build a rail and pipeline through NK to South Korea. Since Russia shares a 10 mile border with NK, it would be easy. It would allow SK to export by way of rail to Europe at 1/3 the distance and time as shipping by boat. And SK would be another customer for Europe’s NG if the EU keeps making trouble for Russia. Many changes happening because of the US’ stupidity. Or is it the plan to destroy the USD that is working?

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