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Prospects of Russian gas export to China: political and economic aspects

Key topics of Konstantin Simonov's speech at The Fourth Sino-Russo-Kazakh Oil & Gas Forum. 
Beijing, China, December 6, 2007.

(Read this speech's presentation in PDF PDF 289 KB)

 

China in gas trap

Production and consumption of gas in China
Source: BP

At first sight situation is comfortable: China produces more gas than consumes.

But …

  • The same situation was with oil and coal. And now China is increasing an import of this energy carriers.
  • The serious increasing of consumption: the production of gas will be behind consumption very soon.
  • Gas is difficult to substitute by coal also because of ecological aspect.
  • Difficult geological conditions of occurrence of natural gas causes the cooperation with Western companies. This process increases the political risks.
  • Shelf projects are also dangerous from political point of view especially in case of military operations.

How Much Gas will China consume?

  • International Energy Agency: China import of gas in 2020 will be 80-160 bcm.
  • Until 2010 it will be possible to solve the problem with a help of LNG –but import must not be more then 10-15 bcm and gas production must be on scheduled level).

Where to take Gas?

Gas production chart
Source: BP

  • LNG: the beginning of supply from Australia, Algeria, Nigeria and Oman. Soon we will see the supply from Malaysia and Indonesia. But the stake on LNG can be problematic.
  • In the case of war the LNG supply chains will be broken.
  • It’s possible to see the decline of gas production in Asia and Oceania.
  • Competition for gas with Japan and Korea.
  • Struggle for Turkmenistan – hope for 30 bcm from Amudariya is very optimistic. Situation with gas supply from Uzbekistan and Kazakhstan is even more uncertain.
  • Myanmar – serious political risks.

Gazprom is in Comfortable Position

Three factors in favour of Gazprom:

  1. The serious increasing of dependence of EU on import of energy carrier (gas - 84% to 2030).
     
  2. Very difficult situation with supply of gas to China from other regions.
     
  3. The struggle for Central Asia will not be totally lost by Russia. China or EU can build pipelines from CAC - but there will no reserves to respond to the demand of both consumers. It means that if China solves the problem of gas supply with a help of CAC it will increase the «gas starvation» of EU.

Forecast of the Russia’s gas balance through 2015, bcm
 200720082009201020112012201320142015
Resources776793810832856884924957976
Production645679695711734758797827844
Including in the Far East71319262735394144
Gazprom561567569570572582594615620
Others102112126140162176203212224
Gas from Central Asia626363686870707070
Intake from underground storages505051525354555861
Distribution776793810832856884924957976
Domestic market415422431437445454461469476
Including in the Far East7911131417182021
Gazprom’s technological needs535454555556575757
Export257267274283299315346368376
Source: Gazprom

Where is free gas for China?

Forecast of Production and Exprot of gas from Far East and Eastern Sibirea in 2030 according to East-50 Scenario

  • Production in Russian East - 120,8 bcm to 2030
  • Export - 77,6bcm

A Lot of Variants …

East Siberia and Sakhalin energy map by 2030
Source: Vedomosti

…and a Lot of Problems

  • Kovykta – not for China. From China point of view it will be the best solution – cheap extraction and increasing reserves (only in 2007 the increasing on C1 was 173,3 bcm).
  • According to East Gas Program the extraction of gas on Kovykta will start in 2017.
  • Kovykta is the trump of Gazprom and it can use it in relations with EU.

The Problem of Choice

  • There are no plans to organize gas export from Krasnoyarsk Region.
  • Yakutiya – the question of price.
  • Sakhalin is for Japan and Korea.Most reliable is the scenario of integration of Sakhalin-1 and Sakhalin-2 projects to one LNG export center for Japan, Korea and the USA in future.
  • Main question is choice between East and West. It’s not only the choice of gas export model. It’s a choice of geopolitical ally.

Thank you!


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