While the landmark $400 billion Gazprom deal stole the headlines during Russian President Vladmir Putin’s recent visit to China, another smaller deal, this one involving Russia’s second-largest natural gas producer Novatek, also warrants attention. China has contracted Novatek to supply 3 million tons of liquefied natural gas (LNG) annually.
Given Chinese enthusiasm for replacing coal with gas and Russia’s ambition to acquire a 15 percent share of world liquefied natural gas (LNG) exports, the two countries potentially have significant shared interests. While many of the elements of a far-reaching partnership are taking place, long-term success will depend heavily on the ability of Beijing and Moscow to agree on prices.
According to a BP estimate, China consumed 143.8 billion cubic meters (bcm) of gas in 2012 (125 million tons of oil equivalent) up 9.9 percent from the previous year. Of this, 21.3 bcm was sourced by pipeline from Turkmenistan and 20 bcm was imported as LNG (with more than half of that coming from Qatar and Australia). The remainder was domestically extracted.
At present, natural gas constitutes a modest 4.4 percent share of China’s energy consumption, but Beijing plans to raise that to 7.5 percent in 2015 and then to 10.0 percent by 2020. This would mean that next year China would be consuming 260 bcm of gas annually, with 90 bcm imported and the remaining 170 bcm planned to extracted domestically.
China will be placing a particular focus on imports of LNG, which is sees as a key element of its national gas-for-coal strategy and a prime source for city consumption. LNG will give China another plank in its energy security, given that its transportation does not involve pipelines and troublesome transit disputes.
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