China-Russia Natural Gas Pipeline Cost will Increase by US$1 Billion to Protect Lake Baikal

At the Gazprombank promotion conference held in Beijing on Wednesday, Gazprom Bank’s First Vice President Olga Dadasheva made it clear for the first time that the bank will lay the “Altai” natural gas pipeline from Western Siberia to China. Funding.

Gazprombank is a wholly-owned subsidiary of Gazprom. Although it was established not long ago, it has become one of the three largest banks in Russia by virtue of its owner's strong strength. As Gazprom's official overseas agent, Gazprom Bank has performed the financial support function for Gazprom's major projects since its establishment. Almost all Gazprom's large-scale investment projects are implemented by Gazprom Bank.

Therefore, the statement of the Gazprom Bank Vice President indicates that the ongoing natural gas pipeline negotiations between China and Russia are likely to have entered the final stage.

The formal strategic cooperation between Gazprom and PetroChina began in 2004. After two years of mutual testing, in March 2006, during Putin's visit to China, the two companies finally signed the "Memorandum of Understanding on the Supply of Natural Gas from Russia to China." The document stipulated the date, amount and route of natural gas supply (Eastern Line and West Line) and price formula formation principles. Since then, the pipeline has officially entered the commercial negotiation stage.

The two sides held the first round of negotiations on May 11. According to a press release from Gazprom, "the two sides determined the first steps of a memorandum of understanding on supplying gas from Russia to China and negotiated a schedule for commercial negotiations."

But at the end of June, the situation suddenly changed. Gazprom President Miller announced that of the two proposed pipelines, one has been determined - the western route runs from Western Siberia through the Altai Republic to China's Xinjiang, and will eventually be connected to China's West-East Gas Pipeline; the eastern route runs from East Siberia The Kovykkin gas field in Irkutsk Region supplies gas, and the pipeline is built to Northeast China. After the two pipelines are completed, they will have an annual gas supply capacity of 68 billion cubic meters to China.

Miller said that Gazprom is preparing to start laying the Western Line in 2008. The entire plan costs US$10 billion and the construction costs will be borne by Russia. After the line is completed in 2011, the annual gas transmission capacity will reach 30 billion cubic meters.

Since the eastern route plan put second by Miller this time is precisely the earliest plan proposed by China, whether the Sino-Russian natural gas pipeline negotiations will have twists and turns like the Sino-Russian Far East oil pipeline has become a matter of media concern. focus.

Due to the huge commercial interests involved, Chinese and Russian companies and relevant departments were tight-lipped about the negotiation process. In the following months, various speculations about the pipeline were frequently exposed in the media of both countries, and various opinions were inconsistent.

However, the Financial Times found through multiple investigations and interviews that "peripheral" issues related to the China-Russia natural gas pipeline, such as line direction, gas source assurance, and environmental protection, have been basically cleared, or are not a problem at all. At present, what really needs to be tackled by China, and the outcome is uncertain, is the only issue left to break the situation: price.

On September 12, officials from the Russian Sakha (Yakutia) Republic government, which the Far East Oil Pipeline passes through, proposed to lay another natural gas pipeline next to the oil pipeline to transport natural gas extracted from the gas fields in East Siberia and Yakutia, and to partially Natural gas is exported to China.

It is understood that there are 29 oil and gas fields in Yakutia. If only one oil pipeline is built, the associated gas in the oil field will only be burned. If only one natural gas pipeline is built, there will be a lot of untapped oil left. In the next 50 years, Yakutia can produce at least 35 billion cubic meters of natural gas every year.

On September 22, Vice President Akimov of the Sakha Republic and Deputy Minister of Energy Grubinko gave further details on this in an exclusive interview with the Financial Times in Beijing: Regarding the eastern pipeline, Russia has no Timetable, discussions on these options will continue.

Coincidentally, on October 4, Khabarovsk Territory Administrator Isayev also stated that he would not rule out the possibility of laying a natural gas pipeline to China. It is said that the pipeline's transportation capacity is expected to be 8 billion cubic meters.

What Russia, the two federal subjects, are fighting for is China's earliest proposal for the Eastern Front. However, Gazprom has long made clear its policy of building the Western Front first. This is why the Chinese media are worried that Russia's internal divisions and disputes over interests will affect China. Reasons for Russian natural gas pipeline negotiations.

But Gazprom has plenty of reasons not to worry. Because in July this year, the Russian Duma officially passed a bill giving Gazprom the privilege to export natural gas.

The bill also applies to natural gas extracted from all oil and gas fields in Russia. That is to say, as long as it is within Russia, natural gas exports from any region must be uniformly implemented by Gazprom. Therefore, the final decision on any natural gas pipeline route to overseas countries, including China, rests with Gazprom. The ideas of the two federal subjects, whether they are suggestions or complaints, will not harm the overall situation.

In fact, after the talks between Gazprom and PetroChina on October 19, the leaders made it clear that the two sides were negotiating on the main conditions for Russian natural gas exports to China on the premise of giving priority to the Western Front.

The Jinshan-Altai Mountains that the Western Route Plan passes through is a nature reserve listed as a World Heritage Site by UNESCO. Therefore, after the Far East Oil Pipeline was submitted to the Russian Ministry of Natural Resources for arbitration due to Lake Baikal environmental issues, some media pointed out that if the Altai Pipeline passes directly through the protected area, it will not only encounter protests from local residents, but also directly violate the Russian Nature Protection Law. .

The report also quoted Russian Prime Minister Vladkov as saying, "The project must undergo all necessary assessments, including ecological assessment." In other words, it can only be implemented after obtaining environmental protection certification like the Far East Oil Pipeline.

In theory, the Altai pipeline must obtain environmental certification before construction can begin, but in reality, such certification is actually a "money game."

After Putin instructed the Far East Petroleum Pipeline to move the Lake Baikal section 40 kilometers north, the plan was finally passed smoothly. To ensure that there would be no problems with environmental protection, the Rosneft Pipeline Transportation Company, which was responsible for the construction, added an additional US$1 billion to the cost. This US$1 billion is actually the "environmental protection fee" paid by the Far East Oil Pipeline for Lake Baikal.

The same is true on natural gas lines. Gazprom's subsidiary Giprospetsgaz initially revealed that the cost of the Western Line was US$4 billion to US$5 billion, but Deputy Prime Minister of the Altai Republic Paritalier told RIA Novosti on October 16 that the project cost was US$11 billion. Later, Giprospetsga also stated that the project is still in the investment demonstration stage, and engineering survey work on the pipeline will begin after the demonstration work is completed early next year. After the "Giprospetsgaz" company made such a statement, Paritalier said that the Altai Republic is ready to start implementing the West Siberia-China natural gas pipeline construction plan, and relevant departments have begun line engineering exploration work. The so-called environmental protection issues in Altai have also disappeared.

Russia has the largest natural gas reserves in the world, but due to insufficient investment and Gazprom's long-term monopoly, its production capacity increase was once considered not optimistic. Therefore, when Putin announced the export of natural gas to China in March, the Russian media questioned this.

However, judging from the statistics of the Russian energy sector and Gazprom's business reports in the past two years, the so-called insufficient gas source is also a false proposition.

According to statistics from the Ministry of Industry and Energy of the Russian Federation, from January to May 2006, Russian natural gas production increased by 2.5% year-on-year, reaching 284.1 billion cubic meters, of which Russian natural gas production accounted for 84% of the total production. Gazprom’s exports to countries outside the CIS were 73.4 billion cubic meters, a year-on-year increase of 6.1%.

The profits brought to Gazprom from the sale of natural gas increased from the original 262.6 billion rubles to 454 billion rubles, an increase of 49%.

On June 19, Gazprom Vice Chairman Ananenko announced that Gazprom plans to invest another 125 billion rubles before 2010 to exploit an additional 90 billion cubic meters of natural gas. In this way, the total amount of natural gas expected to be mined by Gazprom before 2010 is close to 600 billion cubic meters. The current annual export volume of Gazprom is only about 160 billion cubic meters. Gazprom consultant Masstepanov said that in the future, Russia's annual natural gas extraction volume in East Siberia and the Far East is expected to reach 113.6 billion cubic meters - which is almost double the transmission capacity of the China-Russia natural gas pipeline.

So, where does the problem of insufficient production capacity come from? The words of Gazprom Chairman Miller revealed the secret at the Gazprom Annual Meeting of Shareholders on June 30 this year.

Miller said in his speech that Gazprom will not extract natural gas without signing a sales contract. He said, "We will only guarantee the needs of partners who have signed long-term contracts with us." He also emphasized that the natural gas market is a seller's market, and sellers can choose partners and more favorable markets, and will only cooperate in the long term. cooperation on the basis of principles.

On October 6, during the meeting between Gazprom Vice President Medvedev and PetroChina Vice President Zhou Jiping, some people were worried about the insufficient gas supply on the eastern route. Medvedev also said that the export potential of the Kovekta natural gas field will be realized within a certain period of time. , will depend on the progress of negotiations with natural gas importers, including China.

Medvedev said that China has completed negotiations on the principle of purchasing gas from the Kovekta gas field. However, China has not yet proposed specific conditions to Russia, including price conditions and the purchase amount as the basis for valuation. He emphasized that supply will be carried out according to price formulas on the basis of unified export channels, which is very important to Gazprom.

The Kovykta natural gas field in Irkutsk has proven reserves of 2 trillion cubic meters and is the main gas source for the China-Russia east-line pipeline. Since 2001, Gazprom has been designated as coordinator of all natural gas projects in Eastern Siberia and the Far East. Solution: Price is the last word

During Putin’s visit to China, all China and Russia signed was a “Memorandum of Understanding on the Supply of Natural Gas from Russia to China” that did not have contractual effect. But even this memorandum has made China wait for nearly 10 years.

Previously, Gazprom reached an intentional natural gas export agreement with China in 1999, but due to the soaring prices in the international energy market, the two parties ultimately did not sign the contract. Just last fall, China insisted on a price of US$70 per thousand cubic meters during negotiations and insisted on using coal as the price calculation formula.

In the memorandum reached between the two sides, China has apparently given up this position. After the signing of the memorandum, Russian Foreign Minister Lavrov said that Russia would sell natural gas to China at "market prices," adding that the price was calculated based on the same formula used to sell oil/diesel to Europe.

In the past three years, China has been reluctant to sign long-term natural gas import contracts with Russia, mainly because the price of natural gas has risen simultaneously with the price of oil, and the cost of importing from Russia far exceeds the domestic market price.

After the "gas" conflict between Russia and Ukraine at the beginning of the year, Russia uniformly adjusted the price of natural gas to Europe to US$230 per thousand cubic meters, while the average market price of domestic natural gas during the same period was only US$100.

At the beginning of this year, a Russian expert who participated in the Sino-Russian natural gas negotiations revealed to the Financial Times that since the cost of exporting natural gas to Asia is higher than that to Europe, the Russian price will definitely not be high during the negotiations between the two parties. It will drop too much. The expert estimated that the final price may be around US$150 to US$170 per thousand cubic meters. But it’s hard to say whether it can settle at this price now.

At Gazprom Bank’s promotion conference, when reporters asked Rusanov about the price at which China and Russia might reach an agreement, the vice president smiled and did not answer.

In fact, even if China got the ideal price of US$150 claimed by Russia, it still exceeded the domestic price by more than 60% (about 700 yuan). This may be Rusanov's smile on the price issue on the closing day of the China-Russia Year. Without answering, the most direct reason why the three major domestic oil giants dared to once again press the National Development and Reform Commission to demand an increase in natural gas prices.

On Wednesday, Medvedev officially announced that starting from 2007, Russia will no longer provide natural gas at any special preferential prices to the CIS countries. The vice president of Gazprom's board of directors said that if Georgian Gazprom does not sign a new gas supply contract, Russia will not rule out stopping the supply of natural gas to Georgia and only supplying gas to Armenian consumers.

Medvedev also said that "the determined gas supply price of US$230 per thousand cubic meters to Georgia applies to all other countries." In this way, the multi-track natural gas price system implemented by Russia in the CIS after the collapse of the Soviet Union has finally come to an end. .

The signal for a price increase first appeared in March this year. As relations between Russia and Belarus deteriorated, Gazprom threatened Belarus and increased the price of natural gas exports fivefold. In September, Gazprom reached a new agreement with Turkmenistan and will purchase the latter’s natural gas at a price of US$100 per thousand cubic meters, which is nearly 50% higher than the original price of US$65. This makes Gazprom's price increase "justifiable."

On November 2, as part of Russia’s economic sanctions against Georgia, Gazprom announced that it would increase its natural gas export price to Georgia from the existing US$130 per thousand cubic meters to US$230. On the day of the announcement, Georgian Foreign Minister Berrushvili was meeting with Russian Foreign Minister Ivanov in Moscow. This is the first high-level contact between the two countries since the espionage incident. After learning of the news, Berushvili said he believed "this is a political decision."

After Gazprom announced a price increase for Georgia, the European Union called on Russia and Georgia to negotiate on the natural gas price increase and emphasized that Russia should propose a market price that Georgia can afford. This price should not be higher than Russia's price for other former Soviet countries. supply price.

Georgia accuses Russia of supplying goods to Ukraine and Azerbaijan at US$130, and to Armenia at US$110, and even to some Western European countries it is lower than US$230. However, President Putin made it clear that if the West is dissatisfied with Russia's price increase and demands that Russia continue to "support" Georgia at low prices, then they will consider paying Russia a price difference of billions of dollars.

On November 3, Russian Ambassador to Belarus Surikov stated at a press conference that the price of natural gas supply from Russia to partner countries including the CIS countries in 2007 has been determined: the supply price to Belarus is per thousand cubic meters. 200 US dollars per meter (because the customs union of Russia, Belarus and Kazakhstan will be established in March 2007, excluding tariffs, Belarus will get natural gas at an actual price of 140 US dollars per thousand cubic meters in the new year), for Lithuanian natural gas The supply price is US$213 per thousand cubic meters. Surikov also said that due to freight issues, the price to Western European partners is relatively higher (the current market price of natural gas in Europe is US$250 per thousand cubic meters).

However, Russia has proposed to raise the export price to Poland from the current US$240 per thousand cubic meters to US$290-300.

At the same time, the Russian "Kommersant" also revealed that based on the principle of fairness, Russia hopes to export natural gas to China and South Korea at "no lower than the export price to Europe." Vladkov signed an agreement to supply Sakhalin natural gas to South Korea during his recent visit to Seoul, and the natural gas negotiations between China and Russia are at the final critical juncture.

A fact that is quite unfavorable to China is that the relationship between China and Russia is not as close as that of Russia and Belarus and other CIS brothers, and the space transportation distance of natural gas is farther than them.

It is worth noting that on October 17 this year, the heads of government of Russia and South Korea signed an intergovernmental agreement on cooperation in the field of natural gas in Seoul. The two parties plan to sign a long-term natural gas supply contract with a term of more than 30 years. It is expected that Russia will export approximately 10 billion cubic meters of natural gas to South Korea every year starting from 2012 to 2013.

Gazprom has already launched commercial negotiations with South Korea's National Gas Corporation. There are currently two options, namely laying onshore or undersea natural gas pipelines. The construction cost of the land pipeline passing through North Korea is US$2 billion, while the cost of the submarine pipeline is higher than that of the land pipeline. However, due to the short distance, no matter how high it is, it will not be higher than the US$5 billion cost of the Altai pipeline.

At present, the average price of South Korea's domestic natural gas market is higher than that of China, so it will be easier for South Korea to accept Russia's offer. Once South Korea arrives first and reaches a commercial agreement with Gazprom, there will undoubtedly be greater pressure on the natural gas negotiations between China and Russia.

After the conclusion of a new round of negotiations between Gazprom and China National Petroleum Corporation on October 6, Gazprom stated in a press release that the commercial negotiations were fruitful and the two parties planned to conclude commercial negotiations on Russian natural gas export conditions by the end of 2006. However, PetroChina has not made any statement on this. This also makes people worry about whether PetroChina can hold on to the predetermined price bottom line amid the rising prices of Gazprom?