What It's All About: Russia, China Begin Construction Of World's Largest Gas Pipeline

Tyler Durden's picture

If after months of Eurasian axis formation, one still hasn't realized why in the grand game over Ukraine supremacy - not to mention superpower geopolitics - Europe, and the West, has zero leverage, while Russia has all the trump cards, then today's latest development in Chinese-Russian cooperation should make it abundantly clear.

Overnight, following a grand ceremony in the Siberian city of Yakutsk, Russia and China officially began the construction of a new gas pipeline linking the countries. The bottom line to Russia - nearly half a trillion after China's CNPC agreed to buy $400bn in gas from Russia's Gazprom back in May. In return, Russia will ship 38 billion cubic meters (bcm) of gas annually over a period of 30 years. The 3,968 km pipeline linking gas fields in eastern Siberia to China will be the world's largest fuel network in the world.

As BBC reports, "the deal will lessen Russia's dependence on European buyers, who have imposed economic sanctions because of the crisis in Ukraine." That is not news and has been known for months ever since the long-anticipated Holy Grail deal was signed in May. More importantly, as Zero Hedge reported last week, one awaits as the invoices become increasingly less denominated in USD, and more in CNY or RUB. Most importantly, and confirming the significance of Russia's pivot away from Europe, which ultimately can have Qatar's gas it so very desires, irrelevant how many thousands of innocent people have to die, the construction ceremony was attended by Russian President Vladimir Putin and Chinese Vice-Premier Zhang Gaoli.

China will start work on the construction of its side of the pipeline in the first half of 2015, Mr Zhang said.

 

The first gas will be pumped from Siberia to north-east China in early 2019.

 

Over the past 10 years, China has used other gas suppliers. Turkmenistan is now China's largest foreign gas supplier. Last year, it started importing piped natural gas from Myanmar.

Increasingly it appears that China will defer to Russia when it comes to cementing bilateral commodity deals, especially if it means further distancing both sides from what has emerged as a natural foe to both aspirational nations: the United States.

Here is what Putin had to say about the latest gas pipeline, soon to be the world's largest, during the groundbreaking ceremony outside the city of Yakutsh, via RT: "The new gas branch will significantly strengthen the economic cooperation with countries in the Asia-Pacific region and above all - our key partner China."

Once we create a gas pipeline network here in the Far East and Siberia, we will be able to connect European pipeline system to the East. And this, in terms of export opportunities and expanding Russia’s ‘gasification’, is very beneficial. Depending on the situation in world markets, we can more effectively implement gas flows- either more to the West or to the East,” Putin told students at North-Eastern Federal University earlier on Monday.

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 Both President Putin and Vice Premier Zhang Gaoli signed the freshly-welded pipeline in a time-honored Russian tradition. The 'Power of Siberia' was welded together by workers from Chayanda gas field, overseen by CEO Aleksey Miller.

 

"Gazprom is always a reliable supplier of gas to its customers - which also applies to the ‘Power of Siberia," Miller said.

 

The 3,968 km pipeline linking gas fields in eastern Siberia to China will be the world's largest fuel network in the world. Both Putin and Vice Premier Zhang Gaoli have called the project the world’s largest construction project, as investment from both countries will be more than $70 billion.

 

“The gas pipeline ‘Power of Siberia’ will increase energy security and ensure Russia’s ability to fulfill export obligations,” Putin said in the opening remarks.

 

Starting in 2019, Power of Siberia will pump gas from Siberia to China’s populous northeast region as well as to Russia’s Far East. The Chinese side will start the construction of its part of the pipeline in the first half of 2015, the Vice Premier of China said.

 

Last year, China consumed about 170 billion cubic meters of natural gas and expects to consume 420 billion cubic meters per year by 2020. Europe still remains Russia’s largest energy market, buying more than 160 billion meters of Russian natural gas in 2013.

So while the west is no longer able to find any growth opportunities, with the marginal free cash flow dollar increasingly going in stock buybacks, Russia has no such problems: running from the Chayanda gas field in the Republic of Yakutia, the cost of construction is estimated at more than $20 billion (770 billion rubles), which includes other investment in the region of $7.5 billion (283 billion rubles). Russia’s largest steel pipeline manufacturer, TMK, will provide materials for the project.

The gas pipeline will become a common transit center for gas production centers in the Yakutia and Irkutsk regions.

 

The first stage of the project will be to transport gas from the Chayanda deposit in Yakutia and connect to the town of Blagoveshchensk on the Chinese border. The 968 km pipeline should be completed by 2018.

 

The Chayanda field, which will begin production in 2015, is estimated to have reserves of 1.2 trillion cubic meters in gas and 93 million tons of liquid hydrocarbons. Each year the field is expected to produce up to 25 billion cubic meters of gas and at least 1.5 million tons of oil.

 

Putin also said that China can become a shareholder in the Vankor oil and gas fields in the Krasnoyarsk region in Eastern Siberia. China will enter into a strategic relationship with Rosneft, Russia's largest oil company, which owns the field.

But, Obama keeps repeating Russia is isolated by the entire world... Is he once again simply, gasp, lying?

To summarize all of the above: while Europe will continue to depend on Russia for its gas imports indefinitely, Russia will no longer depend on Europe for its experts.

Finally, a video of today's festivities if only for Russia, not so much the countries which are "isolating" it...