Cablegate: Sakhalin-Khabarovsk-Vladivostok Pipeline Planned for 2011

VZCZCXRO1889
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDF RUEHFK RUEHFL RUEHHM RUEHIK
RUEHKSO RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNAG RUEHPB RUEHPOD RUEHROV
RUEHSR RUEHYG
DE RUEHVK #0110 2830653
ZNR UUUUU ZZH
R 090653Z OCT 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1019
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1115

UNCLAS VLADIVOSTOK 000110

SIPDIS

E.O. 12958: N/A
TAGS: EPET PGOV ECON RS
SUBJECT: SAKHALIN-KHABAROVSK-VLADIVOSTOK PIPELINE PLANNED FOR 2011

REF: VLADIVOSTOK 109

Summary
-----------

1. Gazprom has announced plans for a pipeline from Sakhalin to
Vladivostok that will begin pumping natural gas from the island
to the Asia-Pacific region in 2011. The pipeline will also
provide gas to the Khabarovskiy and Primorye regions, and may
connect with the proposed trans-Korean gas pipeline, which is
scheduled to begin construction as the Sakhalin-Vladivostok is
completed. Khabarovskiy Kray Governor Ishayev expressed
concerns that the new pipeline may disrupt supplies to his
region.

A Pipeline to Asia
----------------------

2. Alexander Ananenkov, deputy chairman of Gazprom's Management
Committee, announced at the Far Eastern Economic Forum in
Khabarovsk that his company plans to construct a new pipeline
from Sakhalin to Vladivostok that will help provide natural gas
to Asia-Pacific markets. The pipeline is scheduled for
completion in the third quarter of 2011 and will likely connect
with the trans-Korean gas pipeline, should that project come to
fruition (reftel).

3. Ananenkov stated that the pipeline will initially be
supplied by gas from the Sakhalin I and Sakhalin II projects.
It will reach full capacity once gas production at Sakhalin III
begins in 2016 and the Chayanda gas field in Yakutia is fully
operational. Exxon's Sakhalin I project has estimated
recoverable reserves of 485 billion cubic meters of natural gas,
Gazprom-controlled Sakhalin II holds 500 billion cubic meters of
natural gas, and Sakhalin III's Sea of Okhotsk reserves hold
more than 900 billion cubic meters.

Governor: What About Us?
----------------------------------

4. Khabarovskiy Kray Governor Viktor Ishayev has expressed
concern about the plan. The region currently holds a contract
which commits Gazprom to providing 2.5 billion cubic meters now
and 4.5 billion starting in 2010. Ishayev questions the overall
production capacity of the Sakhalin facilities, and has
expressed concern that Gazprom may divert promised supplies to
other markets including Primorye and Asia. Gazprom has stated
that once all three Sakhalin projects and Chayanda are online,
capacity will even exceed demand.

5. Natural gas to Khabarovskiy Kray industry is currently
supplied through an existing pipeline that runs from Sakhalin
through Komsomolsk-na-Amure to Khabarovsk. That pipeline was
built by and had been owned by the Kray until 2006, when Gazprom
paid 10.4 billion rubles to take it over. The old pipeline will
continue to operate together with the new one, though Gazprom
says it is in need of renovation.

6. Also at the Economic Forum, State Duma Chairman Boris
Gryzlov suggested future expansions to the project. He proposed
that once the pipeline has made its way to Vladivostok in 2011,
it should be continued to other regions, such as Amur, Magadan,
and Jewish Autonomous Oblasts and Kamchatskiy Kray. He went on
to say that "despite the West's disinformation campaigns against
us, Russia remains a reliable partner in delivering energy
resources to the world."

Comment
------------

7. The new project should help Russia increase natural gas
supply to its Asian partners. Once the pipeline achieves full
capacity, there should be enough gas to supply both the domestic
and Asian markets, as Gazprom contends. To do so, however,
would require actually getting the Yakutia field hooked into the
pipeline and will be a difficult and lengthy process. If supply
limitations lead to conflict between Governor Ishayev and
Gazprom, the Khabarovsk region is unlikely to win.

BENJAMIN

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