On 2 December, the Power of Siberia (PoS) pipeline was successfully launched. The project is a milestone in the China-Russia energy relationship. The 30-year contract will ultimately stimulate US$37 billion of upstream investment in Russia and link East Siberia with the world’s fastest-growing gas market. It will diversify Russia’s gas sales destinations and help China achieve a cleaner energy mix.
Attention now shifts to the pace of the PoS ramp-up. Gazprom anticipates a five-year build-up to the contracted 38 bcm a year level. We expect the reality to be more gradual because of the cost competitiveness of Russian gas and China’s provincial demand growth. In our base case, PoS will take 7-9 years to reach full capacity, meeting 8% of China’s total demand in 2028.
Russian gas will be most competitive in northeast China, which can absorb up to 15 bcm a year of its supply. Moving south, transportation costs increase and competition with LNG imports will intensify. We expect that upon full ramp-up, Russian gas will be able to secure 13-15 bcm a year market share in the Beijing-Tianjin-Hebei and Shandong region, but less than 10 bcm a year in the Yangtze River Delta.
China’s proposed market reform aims to improve third-party access to infrastructure – pipelines, LNG terminals and gas storage facilities. This may intensify the competition between LNG and Russian gas. Currently, few companies can benefit from low spot LNG prices as third-party access is immature. We expect Asian spot LNG prices to remain soft in the next two years on the back of robust supply growth. If third-party access is greatly improved by the early 2020s, this will impose further risks on the initial PoS ramp-up.
New infrastructure (known as the ‘Russia-China East’ pipeline) is being built to deliver Russian gas to the demand centres. The pipeline ends in the Yangtze River Delta.
The Yangtze River Delta consists of Shanghai municipality, Jiangsu and Zhejiang provinces. This is the beating heart of China’s economic growth, and the pioneer in energy mix diversification. We expect the region’s gas demand will grow steadily by 6% year-on-year on average to reach 70 bcm in 2025.
With barely any local gas resources, the region relies heavily on deliveries via the West-East pipelines, Sichuan-East pipeline and six LNG terminals along the coastline. More regas projects are under way or planned, targeting the region’s incremental gas requirements.
Multiple established and new gas sources can supply at competitive prices. Penetrating the Yangtze River Delta will be challenging for Russian gas. Long transportation distances will make its delivered cost more expensive than newly signed LNG contracts and will narrow the cost advantage to Central Asian gas. Moreover, Russian gas’ stability is less attractive as the region does not have strong winter heating demand, and there is less concern about gas availability thanks to extensive LNG import infrastructure.
Nevertheless, we expect Russian gas to become part of the Yangtze River Delta’s supply mix. And the region has great potential to become China’s pricing hub due to its various supply options and vast demand.
Note: Wood Mackenzie subscribers can access the full report via the WoodMac portal.
New LNG importers – often with the backing of national governments – are stepping up to help take prospective export projects forward, according to industry executives. In doing so, these budding importers are assuming the pivotal role that has been played by Japanese and South Korean companies in the past.
The LNG market is fragmenting, with new companies and new countries coming to the fore as importers, Andrew Walker, vice president of strategy at Cheniere, told the China LNG & Gas International Summit in Beijing on…
China’s natural gas demand growth could be tempered this year as the country pursues coal-to-gas switching objectives in a more measured fashion than in 2017, officials and company executives told an event in Beijing Wednesday.
Speaking at the 4th CWC China LNG & Gas International Summit, Wu Hongkun, CNOOC vice president of trading and marketing, said China’s annual gas consumption growth rate in 2018 could slip below the 15.3% year-on-year growth seen in 2017.
China’s gas consumption is expected to grow by 11.8% in the first quarter of 2018, he added.
Government officials at the conference said coal-to-gas switching will continue apace this year, but further calibration will be taken on the steps taken to achieve targets.
China’s coal-to-gas initiatives “out-performed expectations” last year, possibly leading to gas shortfalls in certain regions, according to Zhang Yuqing, former Deputy Director of the National Energy Administration.
“We are very optimistic about China’s gas demand growth, but there needs to also be effective policies to ensure these targets are reached,” Wu said.
Northern China burns huge amounts of coal for winter heating, which is considered as one of the biggest causes of the smog that affects the region. In March 2017, the government set coal replacement targets to curb the amount of coal burn for winter heating in Beijing, Tianjin and 26 other Northern cities, under the ‘2+26’ policy. Click here to read more…
China’s LNG imports increased almost 50% in 2017, overtaking South Korea as the world’s secondbiggest
importer of liquefied natural gas. Winter demand is currently boosting this increase and
China’s imports of LNG hit a record of 5.03 million last December.
Read more – https://www.chinalnggas.com/wp-content/uploads/2018/02/China-LNG-Press-Release-Jan-2018.pdf
Ye Yishu, President, CNOOC Gas & Power Trading & Marketing Ltd gives a company business update
Yao Li, CEO, SIA Energy discusses the China Gas Market in 2017
Cheng Zhaohui, Director and General Manager, Huadian, Natural Gas Singapore Pte Ltd presents on LNG – Continue to Buy?
CWC LNG Americas Exec Summary 2017.Pat Roberts Reality Bites
View the Webinar here http://world.cwclng.com/webinar-recording-galway-group-2017/
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