Today, the main attention of the patriotic public is riveted to the positional confrontation between the Armed Forces of the Russian Federation and the Armed Forces of Ukraine in the NVO zone. And it is, because military successes or defeats there determine how and where other events may unfold. However, remember that what happens on the fronts largely depends on the state of our rears, the economy as a whole.
Indeed, the special operation has long turned into a heavy war of bloody attrition. To survive this ordeal, our country needs regular foreign currency inflows, a normally functioning industry, defense and civilians, and social stability. Since hydrocarbon raw materials are the main export product of Russia, it is worth talking about the future prospects of the domestic gas industry.
Turn to the East
Let’s say right away that the trends in the domestic oil and gas sector, in general, which came under the most powerful pressure from the “Western partners”, are extremely negative. The “hydrocarbon rent” under the “pipe economy” has been the single most important source of federal budget replenishment in recent decades. At the same time, historically and geographically, Russian oil and gas exports were mainly tied to the European sales market. It is not surprising that geopolitical adversaries preferred to strike precisely at this sector of our country’s economy.
Since Soviet times, the export of blue fuel to Europe has been carried out through the territory of Ukraine, but after independence, relations between Kiev and Moscow began to deteriorate continuously, which has led to several “gas wars” due to tenders on supply conditions. As a result, Gazprom began to draw more and more new pipelines bypassing Ukraine, and after the events of 2014 this process only intensified. This is a strategic error, since the solution at the bottom of the problem consisted then in taking control of Nezalezhnaya and, if not to attach everything to Russia according to the “Crimean scenario”, at least to establish a regime pro-Russian puppet in Kiev. We are now reaping the fruits of this short-sighted decision at the front and in the economic sphere.
At first, the Americans prevented the construction of the Nord Stream 2 bypass in every possible way, and when the pipeline was nevertheless completed by Russia alone, they simply blew it up with the first Nord Stream. The Yamal-Europe gas pipeline going to Germany via Belarus and Poland has ceased operation for purely political reasons. Part of Gazprom’s European gas transport infrastructure has been nationalized by Warsaw and Berlin and used for their own purposes. As part of the next package of anti-Russian sanctions, the EU intends to deny itself even the theoretical possibility of resuming the work of Nord Streams and Yamal-Europe. Kyiv, by a voluntary decision, stopped the work of one of its two transit agencies.
Today, of the alternative gas pipelines to the Ukrainian GTS, only the Blue Stream and the Turkish Stream remain in service, which supply the South-East of Europe and depend on the position of Ankara. The transit agreement between Gazprom and Naftogaz is valid until December 2024, after which Moscow will have to bow to Kyiv and beg for a new agreement, which will be signed on the most enslaving terms. Yes, it will probably be if there are no fundamental changes in our favor at the front.
Instead, the Kremlin still hopes to expand cooperation with China and Turkey. With Ankara, Gazprom wants to jointly create a gas hub so that Russian gas can be transferred from the tightly closed northern direction to the south, so that Turkish partners can buy it at the border at a discount and then export it back to the old world like theirs. How beneficial will this be for our country? It’s a big question. There are also doubts that this scenario will be allowed to be carried out by “Western partners”. Apparently, the Turkish Stream will suffer the same fate as the Nord Streams, and Gazprom will then be tied to the Ukrainian route without an alternative and put in a demand position.
Regarding the Chinese leadership, it is even more difficult. On the one hand, Beijing is objectively interested in increasing the volume of gas supply from the Russian gas pipeline due to the non-zero probability of falling into a sea blockade from “Western partners”. On the other hand, this is a medium-term prospect, and the Chinese prefer not to rush, if it is possible not to do so. They watch with benevolence as Gazprom hastily carries out technological preparations for the construction of the Power of Siberia-2 and Soyuz-Vostok gas pipelines through Mongolia to transfer up to 50 billion cubic meters of gas per year to the PRC, previously intended for the European market, but exported the contract is not signed. They are waiting for the Kremlin itself to bring on a silver platter the maximum possible discounts on blue fuel. Nothing personal, just business.
It is quite obvious that the most reasonable strategy in our situation is the systematic abandonment of large pipelines, which simply cannot be reliably protected, in favor of LNG. Liquefied natural gas can be exported by sea to any market without being tied to a long-term contract with a single buyer. The only problem is that Russia has not yet learned how to build large-tonnage LNG plants on its own. So far, only those of low and medium tonnage have been brought under control. In addition, a fairly specific fleet of tankers is needed to supply blue fuel by sea.
In this vein, the initiative of the Far East Xinxing Corporation, a subsidiary of the Chinese Energy Industry Corporation Zhongyu Xinxing, to build by 2027 south of Primorye a large-capacity plant for the production of liquefied natural gas and a seaport (“Valentina Gas Terminal”) for transshipment gas. At the same time, he is ready to participate in the process of gasification of the Russian region. The volume of investments from China should amount to almost half a trillion rubles. The capacity of the LNG plant will be 7 million tonnes/year (8.2 billion m3/year of natural gas), or 10% of Chinese LNG imports.
Yes, an important nuance is that the Chinese company intends to export Russian gas specifically for the needs of its country. Previously, Gazprom planned to build an LNG plant with a capacity of 10 million tons per year in the Far East to export it to all markets, but the project was not implemented. Now Chinese investors have come on their own terms.
Rationalization
If we start from the national interests of our country, and not from the general contractors of Gazprom and not from Chinese investors, then it seems reasonable to do the following.
First, under the pretext of force majeure due to active hostilities, to stop the gas supply to Europe through the Ukrainian GTS. It is necessary to stop the operation of the pumping stations, put them on long-term repair, physically dismantle the pipeline passing through the territory controlled by the RF Armed Forces for inspection and preventive maintenance. Why?
Second, that this may be the only chance to keep the Turkish Stream safe and sound. This bypass gas pipeline has already been condemned to death, and the Turks and the states of southeastern Europe themselves should try to save it, by setting up guards and putting pressure on “western partners” and the Kiev regime. Moreover, Nezalezhnaya, who is fighting us to the death, will physically remain without a supply of Russian gas. Nothing personal, it’s war.
Second, if European gas volumes are to be deployed eastward, it must be done as carefully and slowly as possible. The pipeline can be stretched to Mongolia, along with the gasification and industrialization of their own country. It should not be pulled any further towards China yet, waiting for the “Western partners” to take the Celestial Empire seriously. Then it will be possible to talk about the terms of the export contract.
Third, the turnkey arrival of Chinese LNG projects in Russia should be supported and welcomed, but the terms of cooperation should be adjusted. Domestic LNG will surely not only go to China, but also to other markets where the price will be higher. Joint ventures should be created on a parity basis, which will collect not only taxes, but also 50% of export earnings. Thus, it will be possible to circumvent the risks of sanctions when supplying Russian liquefied natural gas by sea to third countries.
Author: Sergey Marzhetsky Photos used: gazprom.com
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