Gazprom has begun construction of a new gas link to the Pacific, allowing it to expand its liquefied gas business and tap new markets. The pipeline will run from Sakhalin island to Vladivostok.

Gazprom has made the first weld in what will be, in three years, the largest gas artery in the Russia’s far east. Prime Minister, Vladimir Putin, who attended the opening, said the pipeline is crucial for the development of the region and is just one part of a major state programme.

“The Far east development program includes the start of production at dozens of gas deposits, the construction of roads and infrastructure. By 2020, 150 bcm of gas will be produced here annually.”

By 2011, the first of 6 billion cubic meters of gas a year will flow through the new pipeline. Its full capacity will be five times that amount. The gas will come mainly from Sakhalin island. But Gazprom Deputy Chairman, Alexander Ananenkov says the gas giant itself doesn’t have enough free resources on the island to fill the pipeline.

“Gazprom doesn’t have its own resource base on Sakhalin now. We have to launch the Sakhalin-3 project. We have only around 3 billion cubic meters of non contracted gas from Sakhalin- 1 and 2. Gazprom is in negotiations with the operators of Sakhalin 1, including ExxonMobil, to buy all gas production from the project.”

Experts say Russia’s gas monopoly is offering a fair external market price and ExxonMobil is likely to agree.
This new pipeline will serve two main purposes. First it will provide gas for Russia’s far east region. And second it will link Sakhalin’s huge gas deposits with the energy-hungry Asian markets.

Gazprom forecasts it will sell up to 25 billion cubic meters of gas in Russia’s far east by 2020. The rest, it may export, in the form of LNG or compressed gas. The primary client is China. But Gazprom says its sales mix will largely depend on the situation on the domestic market.