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How to compete USA and Russia in the Chinese gas market

Как будут конкурировать США и РФ на китайском рынке газа

Promotion of U.S. LNG to the Chinese market becomes one of the terms of trade truce between Washington and Beijing. The parties prepare a long-term contract at $18 billion. meanwhile, in the autumn, Deputy Prime Minister Dmitry Kozak said about the intention of “Gazprom” and Chinese CNPC to increase shipments through the pipeline “Power of Siberia”. The Chinese market is considered as one of the priority for Yamal LNG. Can American fuel to oust Russian gas in China?

USA and China are preparing a long-term gas contract. As reported by The Wall Street Journal, China’s state-owned China Petroleum&Chemical Sugru (Sinopec) will sign a contract with American Cheniere Energy for the supply of liquefied natural gas (LNG) for a total of $18 billion to Themselves shipping to begin in 2023. In addition, according to the newspaper, the Chinese side will undertake the construction of the LNG regasification terminals that will be sent another $3 billion investment.

According to media reports, under this contract, the annual supply of us LNG in China will be about 2 million tons or less than 3 billion cubic meters.

This deal will be only the beginning of the development of gas cooperation the parties, said chief Executive officer Association Center for Liquefied Natural Gas (CNLG) Charlie Riedl. It will be followed by new contracts, the expert said.

The U.S. in 2017, become a net exporter of gas. The country is implementing ambitious plans to increase production of LNG. This year due to new power lines to export terminals in the U.S. will increase from 4.9 to 8.9 billion cubic feet per day. And by 2023, the United States plans to launch no less than five lines of production LNG Golden Pass LNG, Magnolia LNG, Delfin LNG, Lake Charles, Calcasieu Pass. Can also be put into operation the sixth production line is Sabine Pass. In total it will allow to increase production of liquefied gas is 18.75 billion cubic feet per day.

Now the main buyers of LNG to the us – South Korea and Japan.

The share of China accounts for 9% of gas exports to the US and that market is the United States seen as a promising. Less interested in him and Russian suppliers.

So, “Gazprom” plans to start deliveries of piped gas in China this year. And the Russian and Chinese side there were assurances that the export gas pipeline from Russia to China “Power of Siberia” – will be launched for a few weeks before the period at the end of 2019. Earlier, the Russian monopoly signed a 30-year contract with the Chinese CNPC on gas supplies from Russia in the amount of about 38 billion cubic meters per year.

In September, Russian Deputy Prime Minister Dmitry Kozak told journalists that “Gazprom” and CNPC are in talks about increasing the volume of supplies through the “Power of Siberia”. The main issue – the price at which the Russian pipe gas to China. The contract that the parties signed in 2014, is estimated overall at $400 billion price Formula, usually, not disclosed, however, five years ago, comparing the data about volumes, timing and total cost, the experts noted that the benefit on the side of China, and “Gazprom” gets small in comparison with the European market margin. Representatives of “Gazprom” are assured: the price is good.

Experts believe that in the first phase, us LNG, Russian gas tube is not a competitor. It is different weight categories, the analyst emphasizes on gas energy Centre of Moscow school of management SKOLKOVO Sergey Kapitonov. The annual volume of supplies from Gazprom 38 billion cubic meters and about 3 billion cubic meters – the American Cheniere Energy.

In addition, LNG and Russian pipeline gas different target markets. LNG is primarily a decision for the coastal consumption centres, particularly in the South of China, and the Russian gas will initially come in the Northern and Central provinces of the country, said Kapitonov. Under discussion between Gazprom and the Chinese side projects “Western route” gas deliveries from the Russian Far East also focus on markets not covered by CNG today.

There are agreements with China and from the Russian supplier of LNG from the Yamal project of NOVATEK. As noted by Catherine Kolbikova with Chinese CNPC the Russian vendor contract for 3 million tons. In General, for “Yamal LNG” the Asian market, including China, is regarded as a priority, however in recent times due to lower prices for LNG in Asia, cost-effective delivery of Russian liquefied gas to Europe. So, in January of spot quotations for LNG in Asia has decreased almost to the level of European prices – 7.8$./MBTU in Japan and China compared to 7.6 million./MBA in the UK.

Demand for natural gas in China is constantly growing. As noted by Xinhua news Agency, in 2018 gas consumption in China increased by 18.1% to 280,3 billion cubic meters of natural gas. By 2020 China plans to limit coal consumption and increase use of natural gas to 347 billion cubic meters per year, recalls the head of asset management Department of the company “Erarium Group” Denis Lisitsyn.

In addition to Russia and the U.S. China buys gas from Turkmenistan, Qatar, Australia, signed a supply contract with Myanmar.

According to the chief analyst GK Teletrade Peter Pushkarev, the only meaning of the Chinese buying American LNG is the need to redeem China’s dollar reserves, including more than a trillion dollars in American Treasuries.

It is a system of natural classification, in fact, because the U.S. deficit with China continues to grow at an alarming rate, and won’t help then no tariffs, no duties, said the expert. During the first meeting of the leaders of the United States and China, Donald trump and President XI Jinping in Beijing more than a year ago and discussed at all the possibility that China will pay for the LNG partially in securities Chinese investment.

That is, in fact, the United States will begin to pay a very heavy debt to China kind: gas, agricultural products specially crafted, but not too advertised the scheme, said the expert.

According to the previously set deadline, Washington and Beijing were to conclude a new trade agreement before 1 March. However, Donald trump has agreed to extend the deadline and stated that it will not impose another increase in duties until negotiations are successful and proper for Washington’s direction.

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