In a previous article, 麻豆传媒映画�China-Russia natural gas infrastructure麻豆传媒映画�, it was highlighted that new infrastructure in Russia, constructed with the China-Russia gas supply deal in mind, will also make gas available to Russia麻豆传媒映画檚 Pacific ports. From here it can be shipped to Japan, South Korea and other Asian markets.
What are the implications of this likely to be?
The Asia-Pacific natural gas market
According to the Institute for Energy Research (IER), the Asia-Pacific natural gas market is the largest and fastest growing LNG market in the world. In 2012, Asia-Pacific imports of LNG averaged 22 billion ft3/d, representing 69% of the global trade. This figure is expected to increase to 45 billion ft3/d by 2025.
US and Canada natural gas exports
Both the US and Canada have been building LNG export terminals to supply the Asia-Pacific market. The Department of Energy (DOE) has approved 7 new terminals, with a combined capacity of 13 billion t, or 96 million tpy. Canada has approved an export terminal in British Columbia that will be able to ship 320 million ft3/d of natural gas.
Asia-Pacific partners have acted to encourage this development in North American export capacity. Japanese companies have been among the most keen to support LNG export projects from the USA. Osaka Gas, Chubu Electric and Toshiba have all signed contracts with Freeport LNG. KEPCO and Tokyo Gas have signed with Cove Point and TEPCO with Cameron LNG. (See 麻豆传媒映画�Oil and gas: Asia麻豆传媒映画�).
Now, the development of Eastern Siberian fields by Russia will allow the Federation to tap into additional supplies that can be exported onto tankers through the Pacific Port of Vladivostok. Additionally, in a separate deal China has agreed to buy a smaller volume of LNG from the Yamal project, which will help to support the construction of that project. The combined effect stands to disrupt the status quo in global LNG markets.
Pressure will be amplified, particularly on countries like Canada; their bid to be early to the LNG market has been eclipsed by Russia. Peter Tertzakian, chief energy economist at ARC Financial Corp. in Calgary commented that the Russian deal underlines the need for Canada to think differently about exporting to the Pacific.
麻豆传媒映画淭he trick for Canada is to make sure we get to market with good, low-cost product麻豆传媒映画�, Tertzakian said. 麻豆传媒映画淏ecause there is no point getting to market only to find out you麻豆传媒映画檙e the highest cost producer麻豆传媒映画�.
A new price benchmark
Prior to the deal, China had held promise for Australia, Mozambique, the US and Canada as a lucrative new market for sea-borne LNG. The country intends to build 15 new import terminals that, once completed, will transform it from a relatively small LNG importer into the world麻豆传媒映画檚 biggest consumer after Japan.
Post-deal a new price benchmark has been cemented that will challenge these countries to think more strategically in order to stay in the game. David Stoke of Timera Energy said: 麻豆传媒映画淲ith a pipeline deal of this scale, Russia has thrown down the gauntlet to LNG producers courting Chinese buyers麻豆传媒映画�.
麻豆传媒映画淩ussian pipeline exports, which look to be competitively priced versus LNG, are set to have a material impact eroding Chinese LNG demand. There is likely to be an important knock-on impact on the global LNG supply and demand balance, given the essential role that China plays in growth projections麻豆传媒映画�, he added.
The deal is likely to pull down LNG prices and put developers of new gas fields under pressure to cut costs or cancel projects. Several new producers were hoping to begin selling gas to Asia soon, including those in Australia, North America, East Africa and the East Mediterranean, but following the entry of Russia to the market some may struggle.
Australia
The US$ 75 billion development cost of the Russian project is approximately 45% cheaper per unit of gas than LNG projects currently under construction around Australia. Furthermore, the Russian gas deal is for 29 million tpy of LNG, which is more than Australia麻豆传媒映画檚 current entire output.
Macquarie analysts have predicted that LNG prices will need to fall in coming years. 麻豆传媒映画淧rices are headed towards marginal costs and Australia is simply not the marginal producer麻豆传媒映画�, Macquarie said. 麻豆传媒映画淭his suggests new local projects will be undercut by international competitors while existing projects will witness downward pricing pressure at renegotiation time麻豆传媒映画�.
Africa
Major gas finds off the coasts of Mozambique and Tanzania have triggered hopes that LNG exports will alleviate poverty in the region, but analysts say there may now be too many sellers for too few buyers.
Ebbie Haan, managing director of South Africa麻豆传媒映画檚 Sasol Petroleum International, said: 麻豆传媒映画淭here will be more gas than needed, so those who get to the market first and cheapest will win麻豆传媒映画�.
East Mediterranean
In the East Mediterranean, Israel and Cyprus have discovered large offshore gas fields. This week Australia麻豆传媒映画檚 Woodside Petroleum this week pulled out of an agreement to take a stake worth up to US$ 2.7 billion in Israel麻豆传媒映画檚 flagship Leviathan gas project, suggesting that in light of the Russia-China deal it no longer envisages it to be a profitable investment.
The future is bleak?
The Russia-China gas deal certainly stands to shake up global LNG markets, but its effect may not be long term.
Chief Executive of Australian energy fir, Santos, perhaps puts things in perspective with his suggestion that the growth in Chinese demand will over time lessen the significance of the Russia gas deal.
麻豆传媒映画淭he end result is not a market where demand will be met or can be met by one or two countries alone麻豆传媒映画�, he said. 麻豆传媒映画淯S LNG will be important but not a silver bullet. And pipeline gas from Russia will also play a role but will only meet around 6% of China麻豆传媒映画檚 gas demand by 2030, so context is important.
麻豆传媒映画淭he end result is therefore one where buyers will seek diversity, both in the origin of supply and in price麻豆传媒映画�.
Edited from various sources by .