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The pipeline agreement between Russia and China is expected to take a decade for exports to increase

Industry sources said that despite recent progress made by Russia in negotiations with Beijing regarding a new gas pipeline, it will take at least 10 years for natural gas exports from China to increase significantly as a result.

Alexei Miller said that a legally binding memorandum had been signed by the CEO of Russian Gas Corporation Gazprom on the Power of Siberia 2 Pipeline during President Vladimir Putin’s visit to China in the last month.

This development highlights Moscow's efforts in reorienting its vast reserves of gas towards Asia, after its energy trade with Europe – once its biggest market – collapsed due to Western sanctions imposed following Russia's invasion into Ukraine in 2022.

It has never been reported when the pipeline will be completed.

Key terms of the Pipeline Deal are not yet agreed.

The proposed pipeline that would pass through Mongolia is expected to deliver 50 billion cubic meters (bcms) of gas per year from the Arctic Yamal area - similar to the Nord Stream pipeline damaged in Germany.

After years of negotiation, however, the key elements of the agreement - such as pricing, investment terms, or the timing of delivery - are still unresolved.

Two sources in the industry said that even if a deal is finalised by the end of the year, it will take five years for the pipeline to be completed and deliveries to begin. It would also take another five years to increase supplies.

A person with knowledge of the situation said that Gazprom does not expect Power of Siberia 2 to reach its half-capacity before 2034-2035, if deliveries start after 2031.

The Oxford Institute for Energy Studies analysts also believed it was a probable scenario.

In a report published last month, they stated that a final agreement could result in the first supply being achieved by the end 2030 or 2031 and a significant part of ramp-up by January 1, 2035.

The Power of Siberia 1 pipe, which will reach its planned capacity of approximately 38 billion cubic meters this year, is the pipeline that Russia started pumping gas to China from eastern Siberia in late 2019.

During Putin's visit to the US last month, 6 bcm more was agreed through this route.

Separately China agreed to export 12 billion cubic meters per year via the Far Eastern route to Russia, beginning in 2027.

China is able to import gas from a variety of sources, including Turkmenistan and Turkmen liquefied gas. Russia will cover around 22% in 2024. (Reporting and Editing by Tomaszjanowski)

(source: Reuters)