Russian gas to China: 2019 start threatens China’s LNG import growth Report

Insight 31 July 2017

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Report summary

Gazprom and CNPC announced they would start gas supplies via the yet-to-be-built Power of Siberia pipeline on 20 December 2019. This is early in the previously agreed 2019-2021 start-up window. The gas supply deal is significant in balancing China’s long-term gas supply and demand. However, Russian gas exports will face challenges from cheap China domestic supplies in the near term. Given competition from domestic gas, we think initial volumes could be small, accommodating seasonal demand swings in China’s northern markets. Potential for piped gas supply could discourage China's requirement for LNG. The earlier start-up and ramp-up of Russian gas exports could partially cause China’s LNG demand growth to slow after 2020.

Executive summary
- Strong political support for 2019 Power of Siberia (PoS) start
- Motivations haven’t changed since the deal was signed but the market has
- Completing PoS on time will be costly and technically challenging for Gazprom
- Marketing will be challenging for CNPC until after 2023
- Development creates uncertainty around China’s LNG demand growth, especially in winter
Gazprom relies on expensive gas and pipe developments to deliver gas to China
Competition from Chinese domestic production after PoS starts
Completing PoS on time will be costly and challenging
Pressure on Gazprom’s cash flow may impact pipeline construction
Conclusion
- Further reading