COMPLEX NEGOTIATIONS AHEAD
The negotiations with China on new gas sales are expected to be complex, not least because China is not expected to need additional gas until after 2030, industry analysts said.
Russia also faces far more competition than in the past from renewable energy as the world seeks to limit the impact of climate change, as well as rival pipeline gas supplies to China, including from Turkmenistan.
LNG, which can be shipped anywhere in the world, has further reduced the need for pipeline gas.
Gazprom and China have kept their agreed gas price a secret. Ron Smith, analyst at Moscow-based BCS brokerage, expected the price for 2022 to average $270 per 1,000 cubic metres, much lower than prices in Europe.
It is also below Gazprom’s export price of $700 per 1,000 cubic metres, expected by Russian Economy Ministry this year.
Last year, Russia’s energy finances, which are not broken down publicly into oil and gas, were supported by the market impact of fears of shortage.
In Europe, gas prices hit record levels and international oil prices LCOc1 shortly after the special military operation began spiked close to their all-time high.
Since then, prices for gas and oil have eased and Western price caps introduced in December and early this year are designed to erode Russia’s revenues further.
The Kremlin meanwhile has set Gazprom the mammoth task of building 24,000 kilometres of new pipelines to provide gas for 538,000 households and apartments in Russia from 2021 to 2025.
Domestic gas prices are regulated by the government and there have been discussions about liberalising the gas market, a sensitive issue for Russian households.
Back in Novy Urengoy, where temperatures fall to as low as almost minus 50 Celsius (minus 58 Fahrenheit), Achimgaz, a joint venture between Gazprom and Germany’s Wintershall Dea, also has offices and the flag of Austrian energy company OMV flaps outside an administrative building.
Asked about its presence there, an OMV spokesperson said only the building housed offices of the operator of the Yuzhno-Russkoye field, where the company has a stake.
OMV in March scrapped plans to take a stake in a Gazprom gas field project, while Wintershall Dea, in which BASF holds just under 73% percent, said last month it was pulling out of Russia.
The Gazprom official who spoke on condition of anonymity said the company will regret that.
“We will just have to use more gas for our domestic households instead of exporting it to Europe. China also needs gas,” the official said.