LNG, or liquefied natural gas has been in the spotlight in recent months, especially since the US is attempting to force its sales to increase.
Despite that, Russia is constructing a massive gas pipeline, that will directly compete with potential importers of LNG to China, namely Washington.
There have been numerous reports claiming that by 2021 there will be an excess of LNG (due to the abundance of plants which began being constructed in 2010-2015), then a new deficit (after all, no new plants have been built in recent years). But this forecast is finally a thing of the past. After a lull in the market, there is a new LNG boom that is not going to disappear anytime soon.
In 2019 alone, investment decisions on the construction of new LNG plants for 63 million tons of annual capacity (mainly in the USA, as well as in Mozambique and Russia) were already taken. This is a fifth of all global LNG trade.
Naturally, despite the US push to impose its LNG sales and reduce those of its competitors and namely of Russia, Moscow is investing heavily in such infrastructure. The most prominent example, most likely, is the Power of Siberia pipeline which will supply compressed natural gas to China, at a potentially lower price, since it doesn’t need constant cooling down and a, still, expensive process.
Against this background, speculation has also appeared about the impact of future deliveries of Russian pipeline gas to the reduction of LNG imports by China.
It should be noted that there’s been a reduction in LNG deliveries to China in October 2019, but that may be due to an outage, and not so much due to Russia playing any role in it.
In 2019, Gazprom exports symbolic volumes to China, in 2020 – about 5 Bcm/year (billion cubic meters) and 10 Bcm/year – in 2021. At a maximum of 38 Bcm/year, the volume of deliveries will be reached in just a few years.
In addition, the development of the gas pipeline infrastructure inside China will play a role, which will allow (or maybe impede) for the internal replacement of regasified LNG with compressed natural gas in different regions of the country.
Interestingly, in October, China imported less LNG than a year earlier. Such a decrease occurred for the first time in a three-year period. After many years of growth in imports, this event is unexpected, but probably a one-time occurrence as of now. It is also attributed to an outage, rather than Russia’s gas supply.
The outage was of a terminal for receiving LNG. Indeed, the growth rate of demand for liquefied natural gas in China this year is noticeably reduced, following the results of ten months, imports grew by 14%. It is clear that it is impossible to grow by almost 50% annually (as we saw in the previous two years), especially since the low base effect quickly disappears in this case. Regardless, it is a much smaller increase than in previous cases.
In any case, the Asian gas market will continue to grow, the only question is what the balance between supply and demand of LNG will be. And this will be made more volatile and uncertain through the supply of Russian pipeline gas.
After all, plans to expand the supply of gas to China remain. In the conditions of an oversupply in the LNG market, it loses the status of a premium product with a higher price level, which means that a new pipeline export may be an interesting solution, especially if the cost of transporting fuel is low, as in the above example.
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