Siberia and Far East Still Suffer From Low NG Supply Availability

6 april 2016

In order to develop the natural gas delivery infrastructure in Siberia and the Far East, it is important to take into account the probable economic growth rates and increased efficiency of energy consumption in the industry and by households in the next few decades, the Analytical Center's experts note on the pages of the new energy bulletin titled @Challenges along the Eastern Natural Gas Vector."

Siberia and the Far East together account for about 66% of Russia’s territory. The regions have large reserves of natural gas both on land and on the continental shelf in the ocean. At the same time, the NG supply availability in the two areas is just a little over 10%, while in the rest of the country it is about 66%. The NG supply availability is rising every year, thanks, in part, to the federal program to develop the NG delivery infrastructure in the regions and Gazprom’s Eastern Natural Gas Program. However, according to experts, Siberia and the Far East still suffer from the low NG supply availability and it is still unclear whether the existing programs aimed at developing the NG delivery infrastructure will be able to change the situation. In addition, it is unclear whether building new NG delivery infrastructure in those federal districts makes economic sense. Experts note that alternative sources of energy other than natural gas may prove more efficient in Siberia and the Far East.

Experts believe that one East Siberia/Far East natural gas success story is the building of natural gas infrastructure elements at the Kshukskoye and Nizhne-Kvakchinskoye deposits, with the result that since September 2010 natural gas has been supplied to consumers in Petropavlovsk-Kamchatsky. But as the Russian economy is sinking ever deeper into recession, investments in the NG delivery infrastructure in Siberia and the Far East are likely to slow down accordingly, which is going to have a negative impact on the already slow pace of development of the NG delivery infrastructure in the regions, the bulletin notes. In addition, when working on programs to develop the NG delivery infrastructure in regions, Gazprom plans to pay special attention to the degree to which local administrations meet their obligations to get consumers ready for the use of natural gas and the level to which they ensure timely payments for natural gas. Thus, in all probability investments will be scaled back (and possibly the whole program to build the new NG delivery infrastructure might be put on hold) in the regions that fail to meet Gazprom’s requirements, experts believe.

As for the whole "Eastern Vector" in Russia’s current energy policy, it is pointing increasingly to China. The problem is, though, that a too strong emphasis on cooperation with a single partner, even if that partner is the biggest possible partner in the world, entails the risk of increased mutual dependability, and that is exactly the kind of situation that keeps blowing up in Russia’s face in Europe. At the same time, in recent years, other Asian consumers such as Japan and Korea have increasingly been failing to increase consumption above their current level, which throws into question the notion of sustained demand for Russian natural gas, the experts point out.

The multitude of new challenges and risks stemming from falling energy prices includes the safety costs being incurred by companies, the bulletin notes. At the same time companies have to cut other expenses and not just on R&D and social programs but on safety as well. This may result in emergencies or supply interruptions in countries that do not have sufficient monitoring of production processes, according to experts.

For more, read thebulletin “Challenges along the Eastern Natural Gas Vector” (in Russian)

For other issues of the Energy Bulletin see the Publications section.