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. Last Updated: 07/27/2016

Gazprom Confirms Siberia Pipe Plan

ReutersA view of Transneft's oil pipeline. Gazprom's pipeline would run alongside it.
Gazprom on Tuesday confirmed its plans to build a gas pipeline along the major oil link it is constructing from eastern Siberia to the Far East and Asia.

Gazprom deputy CEO Alexander Ananenkov, who is standing in for CEO Alexei Miller while he recovers from a kidney ailment, said gas from the Sakha republic would be used to fill the pipeline.

The proposed gas pipeline would run alongside the East Siberia Pacific Oil pipeline, or ESPO, Ananenkov said in a statement released after a meeting with the republic's president, Vyacheslav Shtyrov.

Prime Minister Mikhail Fradkov backed the parallel pipeline during a visit to Sakha in March, and a government commission tentatively approved the move last month as part of Gazprom's planned development and production strategy for eastern Siberia and the Far East.

That strategy would see the company spending $92 billion by 2030 and focusing production on Sakhalin, Sakha, Irkutsk and Krasnoyarsk with an aim to supply the country's Far East and likely China.

Negotiations with China, which has seen an average of 10 percent annual growth in gas demand, have been stalled over pricing. Chinese demand in 2006 stood at 55 billion cubic meters, and is due to double by 2010 as the country reduces its dependence on coal.

Ananenkov said last month that deliveries to China would travel the same distance as gas the company provides to many domestic consumers, suggesting the price could be close to what Russian customers pay.

Gazprom's acquisition of TNK-BP's majority stake in the Kovykta project in eastern Siberia could pave the way for part of the field's estimated 1.9 trillion cubic meters of reserves to be sold to China, analysts say. TNK-BP had been blocked from shipping gas to China by Gazprom's refusal to build a pipeline to the energy-hungry country. The Russian-British company was instead restricted to supplying weak local demand, drawing the ire of the Natural Resources Ministry, which accused it of failing to fulfill production quotas.

On Tuesday, Natural Resources Minister Yury Trutnev said the ministry was ready to change the terms of the field's production license.

"We agreed that by the end of August, Gazprom would present its plans for the exploitation of the Kovykta field," Trutnev said, Interfax reported.

Gazprom, which maintains a monopoly on export pipelines, has been seeking to corner the Chinese market. It has moved to block ExxonMobil from selling the gas it produces at Sakhalin-1 to China, and has requested that the government award it the licenses to two key fields without auctions.

Gazprom hopes to win the licenses to develop the Chayandinskoye field in Sakha, estimated to hold 1.24 trillion cubic meters of gas, and the Sakhalin-3 fields, which are believed to hold 1.3 trillion cubic meters.

"Gazprom's strategy focuses on retaining maximum flexibility on supplying China, sending the message that Russian gas is available for the right price," said Clifford Kupchan, a senior analyst at Eurasia Group, a risk consultancy.

Industry and Energy Minister Viktor Khristenko said last month that the country planned to export 68 bcm of gas per year to China by 2020 through two pipelines.

Khristenko said a western pipeline was to start pumping 30 bcm per year by 2011, and an eastern link will pump an additional 38 bcm per year by 2016.

Gazprom and oil pipeline monopoly Transneft have set up a working group to discuss using the same route, Transneft vice president Sergei Grigoryev said, Bloomberg reported.