China-Russia gas deal: Is Nigeria losing Asian LNG markets?

After years of negotiation, Russia last week secured a new export route for its pipe gas into the expanding Chinese market, as an official state visit by Russian President Vladimir Putin to China’s Xi Jinping saw the signing of a gas deal.

The deal between the two countries ensures the supply of 38 billion cubic metres (bcm) of gas per annum from Gazprom’s East Siberian fields into China via the Power of Siberia pipeline. First gas through the Power of Siberia is expected to come on stream in 2020.

While China is expected to experience the largest growth in natural gas demand because the government is promoting gas as a preferred fuel to help alleviate air pollution, the momentous pipeline agreement could have implications for other liquefied natural gas (LNG) producers and exporters who seek to tap the high-demand Asian markets.

From 2010 to 2020, the Energy Information Administration (EIA) projects natural gas consumption in China to rise at an average rate of 7.5 percent per year, while production will grow by an average of 2.4 percent per year, with growing shares from coalbed methane and shale gas coming on line by 2020. 

Nigeria, world’s fifth biggest LNG exporter, had seen increased demand of LNG spot cargoes from Asian buyers in recent times, including China. 

Spot cargoes are cargoes which are available for immediate loading. The LNG spot and short-term market has increased exponentially over the last 10 years and now represents 20 percent of the total global market for LNG.

In the last few years, the main markets where LNG is traded over the spot-market are the United Kingdom and Asian countries like Japan, Korea, Taiwan and China, and the main LNG suppliers for the market have been Qatar, Australia, Indonesia, Trinidad and Nigeria.

India, Japan, South Korea, China and Taiwan together accounted for nearly 70 percent of LNG shipments in 2012, according to BP Statistical Review of World Energy.

PetroChina Co, China’s biggest oil and gas producer, received a spot cargo of LNG from Nigeria in December last year. 

Nigeria had in July 2013 when President Goodluck Jonathan visited China signed a deal for economic cooperation with China that included comprehensive financial cooperation in support of Nigeria’s economic development and a preferential buyer credit agreement.

According to analysts, Russia’s $400 billion gas deal with China may pave the way for cheaper energy for the rest of Asia and put in question the viability of future gas developments around the world.

By committing to the 30-year accord, Beijing will help finance the development of two vast gas fields in Eastern Siberia. While much of that output will go to China, there will still be plenty of relatively cheap gas left over that Russia plans to pipe to the Pacific coast near Vladivostok and ship as LNG to elsewhere in Asia. That will put downward pressure on energy prices in the region.

Aside from the gas deal with Russia which will meet China’s rising gas demand, the development of the country’s shale gas resources may also put some LNG projects at risk.

According to the EIA, China has an estimated 1,275 trillion cubic feet, or 36 trillion cubic meters, of technically recoverable shale-gas reserves, more than Canada and the US combined. 

FEMI ASU