Page 7 - EurOil Week 33

EurOil COMMENTARY EurOil

include individual countries’ policies to help shares this level of enthusiasm, however, with
drive economic recovery, and how effectively some unnamed Chinese LNG traders telling the
they are able to deal with COVID-19, including research service that demand remaining flat this
whether they can avoid new waves of lockdowns. year was “good enough”.
OIES forecasts that globally, gas demand While the short-term picture is uncertain,
will decline by 3.5% y/y, or 140 bcm, in 2020, the long-term prospects of the Chinese gas mar-
before rebounding by 3.7% in 2021. The insti- ket are better for Russia than those in Europe.
tute notes that this is still over 3% lower than its While the Asian giant is intent on expanding
pre-COVID-19 forecast. its gas pipeline network, the reality is that the
Against the backdrop of such muted demand, grid remains underdeveloped. This has led to a
Europe has a more diverse supply mix than ever swathe of LNG import terminals springing up
before. For suppliers, this adds pressure to ensure along the coastline to feed to country’s urban
their gas is sufficiently competitive with other hotspots. Russia’s Power of Siberia pipeline –
flows to Europe. which started up in December 2019 – is deliver-
Rising competition in the European market ing gas to the country’ north-east, which is little
is prompting Gazprom to pivot east, having exposed to LNG imports.
announced a few months ago that it had begun With Chinese demand expected to pick up While the short-
design work on the Power of Siberia-2 (PoS-2) in the long run as the country transitions from
gas pipeline. coal to gas in industrial and residential power term picture
and heating solutions, the case for greater Rus- is uncertain,
Longer-term prospects sian imports grows. This outlook, coupled with
The Russian gas giant is eager to expand its export increasing competition in Europe, is guiding the long-term
options beyond Europe, where it accounted for Gazprom’s export strategy, with the company
around 35% of the market last year, and China announcing in May that it had begun prelimi- prospects of
serves as the obvious alternative. nary work on the 50 bcm per year PoS-2 pipe-
Despite being the first country hit by COVID- line. If built, this would be a significant capacity the Chinese gas
19, China’s early adoption of lockdowns allowed it expansion on PoS-1’s 38 bcm. market are better
to limit the spread of the virus much more quickly Gazprom has been working on a pivot east
than many other nations. This has allowed eco- for years, with PoS-1 the fruits of those labours. for Russia than
nomic activity to regain some momentum, which Negotiations on that pipeline took well over a
in turn is fuelling gas demand. decade, however, and concerns abound that those in Europe.
The economy expanded by 3.2% in the sec- Beijing and Moscow’s past difficulties in finding
ond quarter, after contracting 6.8% in the first a middle ground on gas pricing could resurface
quarter. This bounce-back has encouraged S&P and hinder talks on PoS-2.
Global Platts Analytics to forecast that Chinese The COVID-19 crisis, plummeting demand
gas demand will grow by 7.7% y/y this year to in Europe and rising competition in these west-
337 bcm, with LNG anticipated to grow by 9% ern markets may force Russian negotiators to be
y/y, and pipeline imports by 7.6%. Not everyone more amenable to China’s price demands.™

Week 33 20•August•2020 www. NEWSBASE .com P7