Three sources, speaking on condition of anonymity, said last week that the much touted Power of Siberia (POS) natural gas pipeline to be built by Russian gas giant Gazprom and earmarked to bring natural gas from two new fields in Russia to China could be delayed. The sources said that the pipeline could be postponed until the Altai-pipeline, a smaller gas pipeline in Russia, is built. Moscow denied claims that the POS pipeline will be postponed.

In May, Russia signed an estimated $400 billion gas supply deal to deliver 38 billion cubic meters (bcm) of gas through the POS pipeline to China, with first gas to be delivered in 2018. The pipeline deal is so large that analysts have claimed that it will change gas dynamics in the Asia-Pacific region, while reducing Chinese demand for historically expensive liquefied natural gas (LNG).

In early November, the two countries also signed a preliminary deal for Russia to deliver 30 bcm of gas annually over 30 years from Western Siberia to North-Western China via the Altai route. Analysts estimated the second deal to be worth approximately $300 billion, while both deals combined would account for almost 17 percent of China’s gas consumption by around 2020.

Speculation is that plunging oil and gas prices could be part of the reason for any possible postponement. Since mid-June global crude oil prices are off nearly 60 percent, while natural gas prices are also off by at least half since the start of last year. The quandary for Russia in this ongoing price decline is that the government receives as much as anywhere between 30 percent to 50 percent of its revenue from its oil and gas sector. Media reported that low energy prices have hurt the case for the investment required to develop the new fields the pipelines would serve.

Perhaps plunging energy prices aren’t the only reason for possible POS postponement. Keun-Wook Paik, senior research fellow at the Oxford Institute for Energy Studies and author of the book Sino-Russian Oil and Gas Cooperation: The Reality and Implications, told Breaking Energy that it’s not an exaggeration to say that the POS gas deal in May 2014 was initiated by President Putin, not by Gazprom CEO Alexei Miller.

 

He added that in late October 2012, when President Putin instructed the POS line development, Gazprom was designated as a mere implementer of the pipeline. Therefore, Paik argues that news indicating that Gazprom may try to develop Altai first – at the expense of POS – is evidence that Gazprom is testing President Putin’s commitment towards POS.

“Gazprom’s priority was always Altai, not POS,” he said. “However, the one who changed this priority was president Putin. Gazprom’s management has no courage to challenge this decision by President Putin directly and under the excuse of difficulty in securing the financing for POS, Gazprom is testing President Putin’s commitment by using financing advisors’ media interviews.”

“It is a very opportunistic and short-sighted approach. Basically, Altai-first means Gazprom’s interest first, not Russia’s interest first. However, President Putin’s stance is Russia’s interest first, not Gazprom’s interest first.”

Paik added that in this context, “Gazprom’s shrewd and very opportunistic stance towards POS will be punished by President Putin, if this news is properly reported to the President in person.” He said that the core of Russia’s pivot-to-Asia policy is POS development, and any delay is not acceptable by President Putin. According to Paik, Sino-Russian oil and gas cooperation is set to enter into a new strategic level of cooperation, and POS development is the cornerstone of that cooperation.