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gas to China’s north-eastern provinces and as far as Beijing. LNG imports are mostly used in coastal provinces. There is no direct competition between the two in terms of physical supply.”
JBC Energy analyst Kostantsa Rangelova, meanwhile, underlined the importance of LNG imports to China’s diversification of supply strat- egy. She added: “The pipeline will only reach regions that are currently little exposed to LNG imports, hence meeting demand there will likely not have a sizeable outright effect on seaborne inflows.”
Both analysts even noted that as Russian LNG export grows in the future, China will become an important target market.
Rangelova said that while annual demand growth was predicted to slow again in 2020 – to 7% – this still represented relatively strong growth figures and meant China would remain an attractive target market for LNG. Chinese buyers’ long-term contracts with suppliers such as Qatar, Australia and Malaysia might, however, prove to be a limiting factor.
Yermakov said Yamal LNG’s ramp-up to its full capacity of 18mn tonnes per year (tpy) in 2019 meant that output would be increasingly targeted towards China. CNPC owns 20% of Yamal LNG, while China’s Silk Road Fund owns another 9.9%.
What next
China’s energy planners remain eager to increase the country’s piped gas imports, which are cheaper than LNG imports, more secure than maritime shipments and open up delivery routes to landlocked regions such as the north-western region of Xinjiang or southern Yunnan Province.
As such, Beijing and Moscow have also dis- cussed a second string of Power of Siberia, also known as the Altai route. This would deliver 30
bcm of gas from Russia’s Yamal-Nenets Autono- mous Region through the Altai Region to north- west China. Talks on the route, however, have been ongoing for almost 20 years, with little to no progress made.
Yermakov said the problem could lie in the pipeline’s marginal economics and availability of competing alternative supplies from Central Asia and China’s own Tarim Basin. He sug- gested an alternative supply option might lie in Gazprom’s South Kirinskoye gas field in Sakha- lin, which the state company has said could be brought on stream by 2023. If the Russian gas giant delivers, then up to 20 bcm could be supplied to China’s north-east via an expanded Sakhalin-Khabarovsk-Vladivostok (SKV) pipe- line, Yermakov said.
Rangelova was also sceptical that a deal on the Altai route could be sealed in the near future, saying that open Sino-Russian talks on a gas export route via Mongolia suggested a deal there was more on the cards. But she warned that the two sides’ struggle to find common ground on a pricing mechanism meant concluding a deal in the near future would prove challenging. She added: “Russia is insisting on locking up sizea- ble volumes under take-or-pay clauses under oil-linked pricing conditions. Naturally, China is looking for contract conditions that are as flexible as possible.”
The start-up of Power of Siberia is a much-an- ticipated milestone in both countries’ energy strategies. While it is remarkable that it has taken this long for Russia and China to connect their gas grids, Moscow and Beijing’s reluctance to give up too much ground on pricing suggests any new pipeline deal could still be several years away. Instead, expanding LNG shipments may be the simplest way to ramp up the two coun- tries’ gas trade.™
China’s energy planners remain eager to increase the country’s piped gas imports, which are cheaper than LNG imports.
LNG imports remain important to China’s diversification of supply strategy.
Week 47 28•November•2019 w w w . N E W S B A S E . c o m
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