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Gold Stream: Gazprom’s new pipeline deserves to be called by that name

This is an abridged version. The full text is avaiable to subscribers to The Russian Energy weekly.

The capex of developing the Chayanda project and in Yakutia and connecting it to the Pacific coast is going to cost not 1.2 trillion rubles (about $39 bln), as Gazprom says, but actually between 1.8 trillion and 4 trillion rubles ($57 bln to $128 bln), according to experts. The viability of the project is questionable.

Unfamiliar figures

After a meeting with President Vladimir Putin, Gazprom Chairman Alexey Miller told journalists that the cost of ‘creating a system of gas trunk lines’ from Chayanda to Khabarovsk and Vladivostok would equal 770 bln rubles ($24.8 bln) and another 430 bln rubles ($13.9 bln) would be invested in developing the Yakutian field. The whole project, therefore, would require $38.7 bln to get accomplished.

An expert of an R&D institute that took part in preparing the project’s pre-feasibility study (investment justification study in Russian) refused to comment on this estimate in an interview with RusEnergy but admitted that the figures were ‘unfamiliar.’ ‘I cannot say whether it is close or not to the costs quoted in the investment justification study,’ he added. ‘I am just saying we did not quote such figures to Gazprom.’

Another expert, also involved in the work on the study, informed RusEnergy that the document contained 22 variants of the project, and at least eight of them envisaged the ‘northern’ route of the pipeline, which the management of Gazprom had selected. The capex of building this pipeline varies between $28 bln and almost $53 bln.

The same is true for the cost of developing Chayanda. If the price of the membrane unit needed to recover helium from natural gas is added, the capex of field work is estimated for these eight variants between $14.3 bln and $15.6 bln. The development of the oil rim in the reservoir (which must precede extraction of gas) adds another $6 bln to $7 bln to the total.

‘It is necessary to add the cost of the gas-fed petrochemical facility in Belogorsk, which Gazprom has already promised to build, between $15 billion  and $24 billion, and you will see that the sum total is not going to be below $63 billion,’ the expert said. He believes that the boss of Gazprom was unwilling to quote the full figure because he ‘did not want to scare the public.’

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