Power of Siberia 2, questions linger

The field of business strategy is, understandably not full of enthusiasts but peopled with doubting thomases. Recent concord between the two leaders of Russia and China on the supply of Yamal natural gas leaves quite some grey zones. Here is my take as a business strategist navigating amid geoeconomics:

To begin with there has to be quantified demand and deliverable supply. There is no question that Yamal Peninsula is a flat, tundra region known for its poor drainage and large natural gas deposits. Tapping is not a difficult task with modern engineering on the side of Gazprom. But delivering it along a pipeline traversing Mongolia to North-West China traversing 2,594-km long cutting across the arid zone of Mongolia without any hiccups is going to be a big job.

What is the forecast demand in China for the use of gas in general? In 2024, for example demand for gas bottomed down. In the first half of 2025 it has somewhat recovered. Most optimistic forecast pitches it on the overall demand of 456 bcm. China does not want to take a chance. She has signed up with the largest ever LNG future contracts with Qatar and other suppliers. But Chinese are assiduous buyers. Whether it is pipeline or LNG they would force the seller to deep-discount the market price for volume considerations.

The bottom line is Russia is down, not selling major part of the pipeline gas to Europe. After Nordstrom blast supply from Russia has frittered down except for the Turk Stream. There again Russia is at mercy to the cunning operator Erdogan. Whether one likes it or not sanctions have had their desired effect on the current revenue projections that forced Russia to find recourse to Asian buyers out of whom she foresee China being most feasible to work with.

Let me point to another angle onto this maths. Gazprom the solo operator had to resort to financial write-offs arising from damaged infrastructure due to Ukraine war, foregoing pre-paid advance due to undelivered gas as well as unrecoverable debt owed by customers including the Ukrainian government. In 2023 it was 860 Billion Ruble which was however reduced to 286 Billion Ruble in 2024.

The market price in which Gazprom share traded recently is about Ruble 131.84. At this level Gazprom is still in doldrums. Can it reverse the trend? One pointer is at the maximum capacity, Power of Siberia 2 is expected to pump in 50 bcm whereas USA is currently supplying China which is the largest single buyer for US propane, accounting for 17.4 mn t, or 27%, of US LPG exports last year. The point I am making is while Yamal pipeline would take few more years to start pumping in gas to China she can count on the alternative route from America as regards to propane.

Gazprom needs to do more homework to craft the right business strategy and that too navigating amid geoeconomics.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist