Russian state-owned Gazprom PJSC’s latest 30-year supply deal with China National Petroleum Corp. (CNPC) for 10 billion cubic meters (Bcm) per year via a new pipeline, the Far Eastern route, could eventually increase Russia’s capacity to China by 48 Bcm/year and impact China’s future demand for liquefied natural gas (LNG).
The agreement won’t affect European gas deliveries as supplies would be sourced from the Far Eastern route, but it could impact LNG imports into China, according to Kpler.
“This deal is expected to weigh on the outlook for LNG imports into China, especially as the import price is likely to be competitive with LNG,” Kpler analyst Laura Page told NGI. “Any new pipeline contracts with China could dent LNG imports, provided the price is competitive with LNG.”
The new Far Eastern route would deliver gas from the Pacific Island of Sakhalin via Gazprom’s Sakhalin-Khabarovsk-Vladivostok pipeline to northeast China’s Heilongjiang province. Gazprom plans to expand its existing pipeline, and increase capacity from 8 Bcm/year to 10 Bcm/year. Gazprom has not confirmed a start-up date.
China LNG Imports Rising
LNG imports to China were up by 17% year/year in 2021, overtaking Japan for the first time as the world’s largest LNG importer, the International Energy Agency (IEA) said in its latest quarterly gas report.
China is forecast to remain the single largest country contributor to import growth this year, the IEA said, but its “growth rate drops to 9% in 2022 due to the ramp-up of pipeline flows from Russia and the overall slowdown in gas demand growth.”
Although China’s 2021 LNG imports reached a record high of 79.56 million tons (Mt), compared to 68.23 Mt delivered in 2020, according to Kpler, lower prices for pipeline gas compared to spot LNG supported China’s increase in pipeline imports last year.
China pipeline imports reached 42.43 Mt in 2021, up from 34.53 Mt imported in 2020, according to China Customs data. China imports gas via pipeline from Russia, Turkmenistan, Kazakhstan, and Myanmar.
POS and POS 2
In 2014, Gazprom and CNPC signed a 30-year sales and purchase agreement for 38 Bcm/year to be supplied via the Power of Siberia (POS) gas pipeline.
The POS exported 8.5 Bcm to China in 2021, up from 4.1 Bcm in 2020, according to Gazprom data. Gazprom expects to increase exports via POS to 14 Bcm this year, and to reach 38 Bcm by 2025.
POS 2 would double gas exports from Russia to China via Mongolia and has an estimated start-up of 2031, but has yet to reach a final investment decision. “Future deliveries through POS 2 would also have a bearish impact on the LNG demand outlook if it gets the go-ahead,” Page said.
POS 2 could have a direct impact on European supplies after 2030. POS 2 would connect to Russia’s reserves in Western Siberia on the Yamal Peninsula, also a source for deliveries to Europe. Gazprom would then have the flexibility to deliver to China and/or Europe.
“While Europe will remain reliant on Russian gas supplies in the near term, in the longer-term this may lead to a more diversified supplier base and faster energy transition,” Fitch Ratings said in a research note on Monday.
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