A preliminary natural-gas deal between Russia and China signed over the weekend paves the way for opening up a second major supply conduit between the two countries—and lowering natural-gas prices in Asia.
The deal comes six months after the two countries signed a landmark $400 billion gas deal and will intensify competition among billion-dollar natural-gas projects aimed at Asian markets.
Alexei Miller , chief executive of Russia’s monopoly exporter OAO Gazprom , and Zhou Jiping , chairman of China National Petroleum Corp., signed a framework agreement in Beijing on Sunday for supplying natural gas through pipelines into western China, Gazprom said.
In May, Moscow agreed to supply Beijing with 38 billion cubic meters of natural gas annually for 30 years through pipelines into eastern China from fields in eastern Russia.
“Given weaker oil prices and rubles, we believe China can extract even better terms on this second deal versus the first,” said Gordon Kwan, head of commodity research at Nomura Holdings .
He estimated the value of the second deal, for the supply of 30 billion cubic meters a year, at $284 billion. “The two Siberian gas deals all together could account for almost 17% of China’s total gas consumption by 2020,” Mr. Kwan said.
China’s hard bargaining will mean suppliers from other parts of the world will have to cut prices to compete. This includes high-cost projects being constructed in Australia, Canada, the U.S. and East Africa to liquefy and transport natural gas to China and other Asian countries by sea.
Russian pipelines would add large volumes to the overall supply in the market, and its plans to boost supplies to China would leave more seaborne liquefied natural gas from elsewhere available for countries such as Japan, South Korea and India.
The spot price of LNG delivered into North Asia had already dropped to a three-year low of around $10.5 per million British thermal units earlier this year, and is expected to remain soft despite the coming winter season.
Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ENLARGE
Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ASSOCIATED PRESS
Moscow is pushing to accelerate energy exports to Asia due to political resistance in Europe, its traditional market, particularly after recent troubles in Ukraine. Its oil exports to Asia have touched record levels this year.
For China, natural gas is key to achieving its clean-energy goals. But it currently faces supply constraints and is dependent on high-price LNG contracts for imports.
“If the pipeline story realized, it will be a strong competitive edge for gas in China. Gas is not competitive now after oil prices dropped,” Li Li, head of research at ICIS C1 Energy, said.
Global oil prices have dropped around 25% from their peak level this year, with the Brent oil benchmark trading below $85 a barrel.
There is some skepticism around the latest gas deal as high-level meetings between Moscow and Beijing are frequently peppered with so-called framework agreements that lack commercial details and financial commitments.
However, market participants are surprised by how quickly the western gas supply route into China is now being promoted after the deal for the eastern route was completed.
“The last piece of the jigsaw may be falling into place,” consultant Tony Regan at Tri-Zen Consulting said.
Source: WSJ
The deal comes six months after the two countries signed a landmark $400 billion gas deal and will intensify competition among billion-dollar natural-gas projects aimed at Asian markets.
Alexei Miller , chief executive of Russia’s monopoly exporter OAO Gazprom , and Zhou Jiping , chairman of China National Petroleum Corp., signed a framework agreement in Beijing on Sunday for supplying natural gas through pipelines into western China, Gazprom said.
In May, Moscow agreed to supply Beijing with 38 billion cubic meters of natural gas annually for 30 years through pipelines into eastern China from fields in eastern Russia.
“Given weaker oil prices and rubles, we believe China can extract even better terms on this second deal versus the first,” said Gordon Kwan, head of commodity research at Nomura Holdings .
He estimated the value of the second deal, for the supply of 30 billion cubic meters a year, at $284 billion. “The two Siberian gas deals all together could account for almost 17% of China’s total gas consumption by 2020,” Mr. Kwan said.
China’s hard bargaining will mean suppliers from other parts of the world will have to cut prices to compete. This includes high-cost projects being constructed in Australia, Canada, the U.S. and East Africa to liquefy and transport natural gas to China and other Asian countries by sea.
Russian pipelines would add large volumes to the overall supply in the market, and its plans to boost supplies to China would leave more seaborne liquefied natural gas from elsewhere available for countries such as Japan, South Korea and India.
The spot price of LNG delivered into North Asia had already dropped to a three-year low of around $10.5 per million British thermal units earlier this year, and is expected to remain soft despite the coming winter season.
Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ENLARGE
Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ASSOCIATED PRESS
Moscow is pushing to accelerate energy exports to Asia due to political resistance in Europe, its traditional market, particularly after recent troubles in Ukraine. Its oil exports to Asia have touched record levels this year.
For China, natural gas is key to achieving its clean-energy goals. But it currently faces supply constraints and is dependent on high-price LNG contracts for imports.
“If the pipeline story realized, it will be a strong competitive edge for gas in China. Gas is not competitive now after oil prices dropped,” Li Li, head of research at ICIS C1 Energy, said.
Global oil prices have dropped around 25% from their peak level this year, with the Brent oil benchmark trading below $85 a barrel.
There is some skepticism around the latest gas deal as high-level meetings between Moscow and Beijing are frequently peppered with so-called framework agreements that lack commercial details and financial commitments.
However, market participants are surprised by how quickly the western gas supply route into China is now being promoted after the deal for the eastern route was completed.
“The last piece of the jigsaw may be falling into place,” consultant Tony Regan at Tri-Zen Consulting said.
Source: WSJ
0 comments:
Post a Comment