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Russia’s major pipeline to China may be put on hold

State-owned oil major Gazprom (ticker: OGZPY) may put its Power of Siberia gas pipeline project on hold, according to sources close to the company. The project may be put off until Moscow completes a separate, smaller project to send gas from existing fields to China through the Altai pipeline project further West than the Power of Siberia route, reports Reuters.

Power of Siberia is expected to transport 1.34 Tcf of gas to China a year for 30 years. The pipeline will be 4,000 km (2,500 miles) and is expected to cost $55 billion. Energy Minister Alexander Novak said last week that Gazprom still planned to bring first gas under the pipeline by 2019.

The fall in global oil prices and international sanctions have hurt investment for developing the new gas fields in eastern Siberia that are expected to supply the pipeline. The prices for gas in the deal, though not made public, are believed to be linked to the global price of oil, which has halved since it was signed last May.

Meanwhile, Moscow needs new outlets for gas from fields it has already developed further west, including the Bovanenkovo Yamal field opened in 2012, which now pumps around 40 billion cubic meters (1.41 Tcf) per year but can produce up to 140 Bcm (4.94 Tcf).

“Yamal gas needs new markets – that’s why Gazprom is pushing for the Altai route. That’s why neither Vladivostok nor the Power of Siberia are a priority – the last one even has no source to be connected to,” a banker close to Gazprom said. A source inside the company agreed, saying Altai “is a priority.”

Gazprom says the project is on schedule

While sources within the company claim that the Power of Siberia may be postponed, the company continues to assert that the project is on schedule. Russia’s energy giant said that construction is due to start soon and that the project will be completed on time, reports the Siberian Times.

During a meeting between Alexey Miller, Chairman of Gazprom, and Yegor Borisov, head of the Sakha Republic, Miller said, “Operations are in full swing and will be completed right on time.” Sakha, also known as Yakutia, is home to the cement plant which will produce the reinforced concrete for the construction of the pipeline itself in a deal worth 3.2 billion rubles ($5.5 million).

Altai is less attractive for China

While the Altai pipeline would be easier for Gazprom to complete, the project is much less attractive for the company’s Chinese partners. The Altai would pump gas to China’s Western border, far away from the country’s industrial east. Moving gas from the Altai east would require China to develop a new pipeline system within the country.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.