Russia May Use Field Hit by U.S. sanctions for Gas Exports to China

MOSCOW (Reuters) — Russian gas giant Gazprom may tap a field hit by U.S. sanctions off the Pacific island of Sakhalin to provide China with gas under a recently signed deal, sources and analysts said on Tuesday.

Russia, already Beijing's No. 3 gas supplier, has been strengthening ties with China, the world's biggest energy consumer, reducing its dependence on its traditional European energy customers amid a standoff with the West.

President Vladimir Putin announced new gas supply deal with China on Friday, which would boost gas exports from Russia's far east where the pipeline network is not connected to traditional routes of its fuel exports to Europe.

Gazprom said it signed a long-term sales and purchase agreement with China National Petroleum Corporation (CNPC) for natural gas to be supplied via a far eastern route.

As the project reaches its full capacity, the amount of Russian pipeline gas supplies to China would grow by 10 billion cubic meters (bcm) per year, totalling 48 Bcm per year, including supplies via the existing Power of Siberia pipeline.

Gazprom has not revealed the source base for the new deal. The company and CNPC have not responded to a request for comment.

Two sources said gas may come from the fields off Sakhalin, including the Yuzhno-Kirinskoye, which Washington put under sanctions in 2015 for Moscow's role in the crisis in Ukraine.

The field, part of the Kirinsky block in the Sea of Okhotsk, also contains oil, while sanctions are related to exploration for or production of, oil or gas in Russian deepwaters.

The sanctions prevent foreign companies from tapping hydrocarbons at such fields, and the possible gas exports from Yuzhno-Kirinskoye may show that Russia has learned how to get around the sanctions.

Moscow-based Sova Capital brokerage said gas for the deal could come from the Kirinskoye field "or more likely the Yuzhno-Kirinskoye field, which should launch in 2023 or 2024".

According to Gazprom's data, Yuzhno-Kirinskoye's reserves amount to 711.2 billion cubic meters of natural gas, 111.5 million tonnes of gas condensate and 4.1 million tonnes of oil. Production is seen there at 21 Bcm per year.

"This will be Yuzhno-Kirinskoye, no doubt about that," a source said about the gas source for the new deal with China.

Gazprom said on its website that "Yuzhno-Kirinskoye is in the process of pre-development, with geological exploration completed within the boundaries of the field."

It has also said the company had been constructing production wells at the field using semi-submersible drilling rigs and it expected to put it on stream gradually in the period from 2023 through 2025.

Sakhalin-1 project is expected to begin LNG production in 2028.

Gazprom's own LNG plant on the region, Sakhalin-2, has not enough resources of gas to raise production and set up a third production line.

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