The startup of the Power of Siberia Russia-China natural gas pipeline in December is expected to weigh on the mid-term LNG demand growth potential of China, the world's second largest importer of the fuel, adding another bearish factor to an already oversupplied Asian market.
The immediate impact on the region's spot fundamentals and prices for this coming winter will likely be limited, however, given the relatively small volume that will be injected into the pipeline network over the first year.
The construction of the northern section of the China-Russia gas pipeline eastern route was completed Wednesday, and PetroChina is expecting supplies into northern China to commence December 1, the state-owned major said Thursday.
"The growth of China's LNG imports is expected to be affected," said a source with one of China's major city gas suppliers, adding that they would consider lowering LNG imports into northern China once Russian pipeline gas is made available.
Two Chinese end-users said they were contemplating reselling some of their winter LNG cargoes into the spot market if the pipeline starts up as planned.
"You might see us in the market this winter, perhaps not to buy, but to sell," said a Chinese LNG importer.
The Power of Siberia is one of the most anticipated energy projects in Asia, with significant implications for China's natural gas supply, LNG import demand in the region and Moscow's energy strategy in Asia.
The project will further enhance China's supply security, and follows Beijing's decision to merge gas pipelines of the three national oil companies to boost connectivity and ease infrastructure constraints.
IMPACT ON WINTER MARKET
Although pipeline imports from the Power of Siberia will certainly help slow Chinese LNG import growth in the medium term, they are unlikely to have a significant impact on Asian LNG spot markets this winter, according to S&P Global Platts Analytics.
The initial flows will be relatively small and will only reach a select area in northern China, said Jeff Moore, Platts Asia LNG Analytics manager.
"Mild weather, slowing activity in energy-intensive sectors or a lack of new regasification capacity would be more likely to negatively impact Chinese LNG imports this winter," Moore said.
Russian pipeline gas supplies in the first year of operations are forecast at 5 Bcm/year, which would only account for around 1.6% of China's total gas supply estimates of 316 Bcm in 2019, according to Platts Analytics and China's National Development and Reform Commission.
Once it reaches full capacity of 38 Bcm/year in 2022-23, it would account for around 9.5% of China's total gas supply estimates of 402 Bcm for 2022.
NORTHERN CHINESE USERS
With a length of 1,067 km, the northern section will connect Russian gas supplies with customers in northeastern China and Beijing-Tianjin-Hebei regions, helping improve supply optionality and energy security in the country's biggest winter demand center.
"We have many city gas supply projects in the northeast, so the startup of the China-Russia gas pipeline is expected to ease our supply pressure in the winter peak season," the source with the city gas supplier said.
The full Russia-China gas pipeline is expected to be completed by 2022-23 and will have a length of 3,371 km in China, which will be divided into three sections -- north, central and south.
It will terminate in Shanghai, passing through nine provinces and autonomous regions, connecting with the Northeast pipeline network, Shaanxi-Beijing pipeline network and West-East pipeline network, according to PetroChina.
PetroChina's parent company China National Petroleum Corp signed a 30-year SPA with Russia's Gazprom in 2014 to purchase gas from the Power of Siberia pipeline. The total gas supply is estimated to exceed 1 trillion cu m, with annual supplies expected to reach 10 Bcm/year by 2021 and 32 Bcm/year by 2022-23.
-- Analyst Cindy Liang
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