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Russian gas pipeline to curb China’s LNG appetite

A new Russian gas pipeline to China will curb its appetite for LNG imports, having a ripple effect on markets since the latter’s surging demand had led to price spikes globally, experts said on Wednesday.

“The cost of this pipeline gas will be very competitive compared to LNG imports,” Yanyan Zhu, general manager of trading at Chinese firm CNOOC, said on the sidelines of the CWC World LNG Summit conference in Lisbon.

Russia is expected to start deliveries of 38bcm of gas to China via the Power of Siberia pipeline in December 2019, the first of three pipelines that are planned totalling 80-110bcm/year, though the timing and capacity of the two other pipelines remains uncertain.

That compares to Chinese LNG imports in the first 10 months of 2018 of 41.6m tonnes (57bcm), a 43% surge year on year to a record high, above the 39m tonnes record set in 2017 when the country became the second biggest importer after Japan, overtaking South Korea.

End of surge
“I don’t think China will let that happen again,” said David Ledesma, an independent gas and LNG consultant, referring to last year’s surge in LNG imports.

LNG price evolution, domestic production and how quickly Russia ramps up flows, are likely to weigh on the volume of LNG imports to be replaced by Russian piped gas.

“Will they increase 10bcm per year? Or will they reach 38bcm in two years? We don’t know but the trend we’ve seen recently [in terms of LNG], will not continue,” Thierry Bros, senior researcher in Oxford Institute for Energy Studies, told Montel.

Russia would clearly have a “crucial role” to play, however, in meeting a Chinese “import requirement that is expected to rise from import 91bcm in 2017 to 170-340bcm by 2030”, added the institute in a recent report.

Chinese government policies to raise domestic gas production would also dent LNG imports, although many analysts cast doubt on the target of producing 247bcm by 2020, from 169bcm last year.

Zhu of CNOOC believed it would happen. “If the Chinese government wants to do something, their support is quite influential by offering favourable policies,” she said.

Indeed, China will raise its gas production and increase pipeline supplies, but LNG imports “will play a especially important role,” agreed Steve Hill, executive vice president of Shell. “Everything will grow, [although LNG imports] are going to slow down a bit.”

Japanese impact
At the same time, however, while LNG supply could jump in the next five years amid a new wave of project builds, demand from key player Japan would decrease by a third as nuclear generation increases, said Keiji Takiguchi, deputy director of oil and gas in the country’s Ministry of Economy, Trade and Industry.

In 2019, the final investment decision 100m tonnes/year of LNG production (136bcm) would be made, said Hiroki Sato, senior executive vice president of the world’s biggest LNG buyer, Jera of Japan. “2019 is the start of drastic changes for our industry.”

In October, Montel reported that falling spot prices for LNG in Asia increased shipments of the fuel to Europe.


by Andrés Cala, November 29, 2018

via Montel–experts-/958065

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