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China, Russia and the 'Power of Siberia' explained

Posted by Simon Pownall on May 26, 2014 11:02:00 AM


    

development_gazprom

After 10 years in the making, the BBC have confirmed that Russia and China have finally signed a $400bn agreement that will see Gazprom send 38 billion cubic meters of natural gas a year eastwards, starting in 2018.

Amongst the various sticking points of the deal over the past decade, the lack of infrastructure to carry the vast amount of gas from one powerhouse to another has been a major one. The 'Power of Siberia' is the one and only pipeline between the two nations that currently stands - and this is not enough.

Financing infrastructure

Financing the new pipeline infrastructure will come in at a cool $30bn alone, another sticking point of the deal. But despite China's attempted efforts to drive a hard bargain, it seems Russia may be the overall winners of this landmark deal by Putin.

See the map below to see the route of the new infrastructure the 'Power of Serbia':

russia_power_of_siberia_gazprom

Russia wins?

The Power of Siberia, also know as the GTS route (gas transmission system) will run alongside the current operational oil pipeline, thus enabling the streamlining of power and supply costs.

Not only have Russia managed to secure cash to drive this project forward further, they have used the China deal to expand their natural gas reach which could potentially be used by other countries.

Although China has a resilience to focus on nuclear in the future, with 32 plants to be built by 2050, the country will still be requiring natural gas to propel their burgeoning economy forward - and Russia will be perfectly placed to deliver that service.

To those doubters who think Putin has undersold his country's prized assets, the opening of economic doors with China could be the greatest achievement of the deal

Investment pays

But will this investment finally pay off for the two countries? Quite clearly, the answer is yes.

By building the new gas pipelines the neighbours expect to double the volume of bilateral trade flow to $200bn in 10 years - and the gas supply will go a long way to fuelling these goals.

For the oil and gas industry, this is the biggest news of 2014 and certainly the largest deal of the decade so far. To those who say fossil fuels are declining in power and resource - you may just need to think again.

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Photo Credit: Gazprom, Gazprom

 

Topics: Oil and Gas Industry

   

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