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Siberia shows strength
What will the regions get from launching a gas pipeline to China?
Russian President Vladimir Putin and Chinese President Xi Jinping on December 2 announced the launch of the Power of Siberia gas pipeline. Vladimir Putin called the contract for the supply of gas to China the largest agreement in the history of the domestic gas industry, more than one trillion cubic meters of gas will be delivered through the gas pipeline to China in 30 years, the head of state recalled. Thus, the main stage of an unprecedented construction was completed, which took place in extremely difficult natural conditions and was marked by breakthrough technological solutions. Now is the time to ask what exactly the gas pipeline will bring to the economy of the country as a whole, and, in particular, to the regions through which it passes. The Power of Siberia was entrusted with the mission of reviving the economy of the territories that had been cut off from the world yesterday, and now connected with it with a steel pipe. We understand how justified these calculations are.
The gas pipeline’s export capacity is 38 billion cubic meters per year; according to plans, the project will reach this level by 2025. At the Russian-Chinese talks in April, an agreement was reached to increase supplies by another six billion cubic meters. The main partner of Russia from the Chinese side is the state-owned company CNPC. The total value of the contract with the Chinese side is $ 400 billion. Already in 2020, Gazprom's revenue is estimated at one billion dollars. Construction cost about 1,1 trillion rubles.
First gas, first hopes
After the solemn launch of the gas pipeline, the next important milestone is 2022, when the Kovytkinskoye field in the Irkutsk region will be connected to the pipe. With the connection of Kovykta, the Power of Siberia will begin to reach its design capacity. Up to this point, it remains to lay another 2,3 thousand km of pipes. So far the disposition is this: in July, the Power of Siberia docked with the Chinese section, which runs from the border to Shanghai, and in August, the Chayandinskoye field in Yakutia was connected to the pipe from the Russian side. For the first six months after the official opening, the “pipe” operates in commissioning mode, that is, without guaranteed supplies. Thus, next year the gas pipeline will begin to operate normally, and the dynamics are as follows: in 2020 - five billion cubic meters of gas, in 2021 - ten billion cubic meters, in 2022 - 15 billion cubic meters.
According to the contract, the Chinese side is obliged to take 85% of the supplied gas. The question is what Russian consumers can count on, both industrial enterprises and municipalities. According to Gazprom’s plans, the first facility to receive gas from the Power of Siberia will be Vostochny Cosmodrome. Soon, Gazprom will announce the launch of a allotment towards the village of Tsiolkovsky (the cosmodrome is located there). But space will not be limited.
Only in the Amur Region the length of the pipe is 2,2 thousand km. With the launch of the gas pipeline, remote villages still have a theoretical, but the opportunity to gasify, says Igor Yushkov, an expert at the National Energy Security Fund.
“Without a pipe, even a theoretical possibility would not exist,” he emphasizes.
When the theoretical probability becomes practical, it depends on the growth rate of production, Yushkov said. Crucial is the connection Kovytkinskoye field.
The current gasification program of the Amur Region for 2018-2022 provides for the gasification of 18 boiler houses and four thousand households. Currently, a gasification program for 2021-2025 is being developed where the list of gasified objects of the economy, housing and communal services and households in the region will be substantially increased.
But the main hope is associated with the creation of a petrochemical cluster in the Amur Region. The decision on this at the government level was made in the early 2010s. According to the plan for the development of gas and petrochemicals in Russia, the cluster in the Far East will become one of the six in the country designed to restore Russia's leadership in the world market and cover domestic needs. In particular, the Amur gas-chemical complex (the project is being implemented by SIBUR) with a capacity of up to 1,5 million tons of ethylene and polyethylene per year promises to become the leading company in the world in the production of base polymers, the company said.
The development of a chemical cluster requires not only gas, but also oil. Recently, representatives of PJSC Gazprom Neft reported that the company has begun to develop the oil "part" of the Chayandinskoye field. The first well produced 150 tons of oil per day, after reaching its design capacity, the field’s productivity is estimated at three million tons of oil equivalent per year. Shipment of marketable oil has already begun, oil will be delivered to the East Siberia-Pacific Ocean (ESPO) pipeline and thus reach enterprises in the Amur Region.
Tax against excise tax
In addition to physical capabilities (availability of raw materials, logistics of its supplies), regulatory factors are of tremendous importance, on which the project economy often depends in the first place. To support the petrochemical industry, the government has chosen a reverse excise mechanism. Reverse excise tax is, in fact, a benefit, the peculiarity of which is that it is administered as part of tax mechanisms. In December, the Ministry of Finance and the Ministry of Energy submitted the bill to the government. The government intends to finance the reverse excise tax by introducing a tax on the production of associated gas in the amount of 50 rubles per thousand cubic meters in 2022, 100 rubles in 2024 and 150 rubles in 2026. Such a way of financing can lead to the situation “they added here, taken there” - Sibur, which is building factories in the Amur Region, is also involved in the production of associated gas. However, the mechanism of financing the reverse excise tax is still a debatable topic, while the petrochemists took the reverse excise tax on their own.
“The adoption by the regulator of a decision on the reverse excise tax is an important factor for the possible and timely approval by the company of the construction of the Amur Mining and Chemical Combine in an expanded configuration that allows the creation of the world's largest integrated capacities for base polymers,” the Sibur company quoted Kommersant as saying.
The reverse excise tax on liquefied petroleum gases should begin to operate in 2022. In the first year, its size will be 4,5 thousand rubles per ton, from 2024 - 6,5 thousand rubles per ton, from 2026 - up to 7,5 thousand rubles per ton. True, the subsidy is not given to everyone. According to the government’s plans, companies can apply for a reverse excise tax, which, after 2021, will either introduce petrochemical capacities or enter into an agreement on this with the Ministry of Energy, with the investment amount exceeding 65 billion rubles. The Amur Gas Chemical Complex and the Irkutsk Polymer Plant (Irkutsk Oil Company) are subject to these conditions.
However, the associated gas production tax remains a serious negative factor that could reduce the profitability of future projects. According to Sibur, the maximum loss of the company may be about 3,5 billion rubles per year. Bargaining with the government is possible: earlier, the Cabinet of Ministers proposed a higher rate on the tax on the production of associated gas, the introduction of which would have turned out for the company, according to its estimates, losses of up to 34 billion rubles a year. The introduction of a tax on associated gas production will worsen the economics of projects, but at least in its current form does not pose a critical threat to their implementation, the company said.
The petrochemical cluster will also be helped by a reverse excise tax on ethane, which will also work from 2022. Its size is nine thousand rubles per ton, and companies that since 2022 commission capacities of at least 300 thousand tons of ethane per year or declare investments in the amount of at least 65 billion rubles will be able to claim it. The Amur Mining and Chemical Combine can benefit from this benefit.
The future is just beginning
“If we collectively count the jobs for these projects (related to the Power of Siberia” - approx. Ed.), Then this is more than ten thousand jobs, very skilled, with high wages. Of course, this is a revolution in the region’s economy, ”said Governor of the Amur Region Vasily Orlov in an interview.
This primarily concerns the village of Skovorodino, where the linear control center is located. It is also planned to build a methanol plant in the village. The local budget has already felt an increase from payments made by gas companies to leased municipal property. According to Aleksey Prokhorov, the head of the district, there is also an increase in the tax on personal incomes: the construction has gathered a large number of highly paid specialists, and the personal income tax remains “below” at the district level. By tradition, gas companies carry out sponsorship projects, for example, in Skovorodino they modernize a local school.
In the Blagoveshchensk district, where Russian gas leaves the country, a gas measuring station is already operating, and gasification of the village of Chigiri is planned. This will significantly improve the economy of local farms: greenhouse complexes, so characteristic of this region, spend a lot of energy. Approximately the same situation in other areas of the region.
But the main calculation is still for the petrochemical cluster. Director of the Institute of National Energy Sergei Pravosudov only visited the construction sites of enterprises in the Amur Region and was impressed.
“They built a whole city, while temporary, of course, but 20 thousand people live in it,” says Sergei Pravosudov. “According to the plans, they promise to launch production in 2021, and I have no doubt that they will launch it.”
Without the Power of Siberia, there would have been no gasification of Eastern Siberia, I agree with Yushkov Pravosudov, "before gasification was exhausted by local projects in the areas of Norilsk and Yakutia." There is no doubt in the courts that all territories along the Power of Siberia will be gasified not tomorrow, the day after tomorrow.
The construction of large facilities will inevitably positively influence the development of territories, says Anna Kokoreva, senior analyst at Coface. In the Amur Region, small settlements and those located near the border will feel the maximum benefit, she is sure, as well as the areas directly adjacent to the “pipe”. The positive effect will become especially pronounced after the launch of the Kovykta field.
“First of all, the synergistic effect occurs in the process of attracting labor to maintain the gas pipeline, including highly qualified engineers from large cities who will draw new requirements for the quality of life,” says Anna Kokoreva. - This is the creation of jobs: new villages in which you need to build schools, hospitals, that is, to recruit medical, teaching staff, and not only. Water and heat must be laid in new settlements, these are also jobs. There will be shops and other points of small business - this is a new level of development of the territory. Finally, do not forget about the momentum that the development of road infrastructure and transport in general will receive. You should not think that, by a wave of a magic wand, a second Chelyabinsk will be erected in an open field, but the importance of the pipeline for the regional economy can hardly be overestimated. ”
The products of the Amur gas chemical cluster will cover the needs of all of Russia, Igor Yushkov recalls, and create conditions for export. According to him, the projects are very large, and the future of the “Power of Siberia” is just beginning.