Tag Archives: natural gas

Just How Good A Gas Deal Is Beijing Getting From Moscow?

THE KEY NUMBER we don’t know in China’s insert-your-own-very-large-number-here energy deal with Russia is the unit price state-owned China National Petroleum Corp. (CNPC) will be paying.  CNPC has finally signed the agreement to buy up to 38 billion cubic meters of natural gas a year from Gazprom for 30 years starting in 2018 (a new pipeline has to be built first). This Bystander hazards a safe guess that Beijing has got itself a very good deal.

The sale has always been necessary for Moscow to wean itself off its dependence on European markets for its energy sales, but merely convenient for Beijing, which has several sources other than Eastern Siberia from which it can meet its growing need for energy, especially cleaner energy than can be generated from its indigenous coal. After 10 years of negotiations between CNPC and Gazprom that have mainly been haggling over the formula that will determine the pricing, all that has changed is the situation in Ukraine. That has given a renewed sense of urgency to Russia’s need to secure non-European markets, while President Vladimir Putin’s two-day visit to China provides the platform from which to announce the deal with political benefits to both himself and his host. President Xi Jinping and CNPC’s chairman Zhou Jiping will have taken full advantage of that.

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China Picks And Chooses Its Gas Suppliers

Gazprom’s decision to put off construction of a $38 billion trans-Siberian gas pipeline for a year will trouble Moscow more than Beijing. The delay is because the two countries continue to be apart on pricing for new Russian gas exports to China.

China, for all its energy hunger, is the more ready of the two to wait to get the pricing it wants on the 38 billion cubic meters of gas it has agreed to buy annually from Gazprom. Russia, on the other hand, is anxious to get its oil and gas companies selling to Asia to cut their reliance on European markets.

The International Energy Agency recently estimated that China will absorb one-third of new LNG supplies worldwide over the next five years as its demand grows by 12% a year. In June, Rosneft signed a contract to supply 2.6 billion barrels of crude oil to China National Petroleum Corp. (CNPC) over the next 25 years, with CNPC also taking its first stake in a Russian gas-export project, 20% of Novatek’s Yamal LNG fields. Novatek, as Russia’s second-largest gas producer, is a Gazprom rival. CNPC will import 4 billion cubic meters of gas a year under its deal, likely starting in 2016.

Earlier this week, CNPC secured a deal to buy more gas from Turkmenistan. State-owned TurkmenGas will up its annual sales from 40 billion cubic meters a year to 65 billion cubic meters a year by 2020. China last year imported 20 billion cubic meters from Turkmenistan. The extra 25 billion cubic meters will come from opening up the second phase of TurkmenGas’s giant Galkynysh field. CNPC will do the development which is being paid for with Chinese financing. Gazprom can wait.

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China, Russia Make Scant Progress In Resolving Energy Disputes

The agreement signed with Russia after the latest round of Sino-Russian energy cooperation talks just concluded in Moscow papers over some wide cracks. For one, there doesn’t seem to be much more to the agreement than that the two countries will continue to try to conclude their long running discussions over two long-term gas-supply deals. Xinhua’s report is all cheer and no content.

What the two sides have been talking about, seemingly since when the Siberian forests that became the oil and gas were still forests, is to expand an outline agreement under which from 2015 Russia’s gas monopoly Gazprom would supply 30 billion cubic meters a year–roughly one-third of China’s 2009 consumption and a quarter of Russia’s total exports–to more than double the volume, supplied via two direct pipelines from Siberia to western and central China. The formula for determining the price has been the main sticking point.

Been there, done that, got nowhere. Pricing is at the heart of the dispute over the Russian oil China has recently started getting via the Daqing spur to Russia’s East Siberia Pacific Ocean pipeline (ESPO). The deliveries are the result of $25 billion-worth of loans in 2009 from China National Petroleum Company (CNPC) and the China Development Bank to the energy company Rosneft and the state-owned pipeline monopoly Transneft that was to be repaid in oil, expected to be 15m tonnes a year (150,000 b/d) for 20 years starting this year.

The oil started flowing at the start of the year, but since then China has accused Russia of overcharging it for the deliveries, and demanded more oil as a make-up, while Russia said China was way underpaying given market conditions. The pricing formula has broken China’s way and Russia can sell to Japanese, South Korean and American customers far more profitably. It certainly has no intent to double up on its losses supplying China. Transneft has threatened to sue CNPC in court. Hard ball meets hard ball.

Meanwhile, the deliveries continue at their original levels. Last month CNPC and Rosneft broke ground for a joint-venture oil refinery in Tianjin that will be able to refine 260,000 barrels a day and is due to start operations in late 2013.

On the gas front, China’s increasing ability to source domestically and from Central Asia and some doubts about Gazprom’s capacity to deliver the extra gas has strengthened Beijing’s negotiating hand, while the higher prices Russia can get for its gas in Europe make Moscow in no hurry to resolve the issue, let alone buckle. Vice Premier Wang Qishan said after the Moscow that China “hopes the two sides could make further essential progress in gas talks as soon as possible and that the two sides exchanged views and plans on future energy cooperation, demonstrating mutual trust as well as candid and pragmatic spirit of cooperation between China and Russia”. Which pretty much says there was no progress.

 

 

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Cheap Russian Oil Starts Flowing To Northern China

The first Russian oil has flowed through the Daqing spur of the 2,750 kilometers pipeline connecting East Siberia to the Pacific Ocean (ESPO). The picture above shows the 1,000 kilometers spur at Mohe, where it enters China. Up to now China’s deliveries of Russian oil have come via Russia’s Far Eastern port of Kozmino to which it travels by rail from the Skovorodino terminal of the main ESPO pipeline.

The pipeline has been built by the Russian state companies, Transneft and Rosneft, using a 20 year $25 billion loan repayable in oil on favorable terms. China will be paying one-fifth as much for Daqing-delivered oil as it does for the supplies that come via Kozmino.

Russia sees a growing export market for its energy in China, though progress on oil stands in marked contrast to natural gas, the fuel to which China is switching from coal to generate heat and power. Negotiations over supplies and building the infrastructure to deliver them are stalled over price, and to a lesser extent some geopolitical jockeying in Central Asia. However, there has been agreement that Russia will start to supply China with Eastern Siberian gas in 2015.

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China Looking To Buy More Russian Energy On The Cheap

Russia’s president, Dmitry Medvedev, is due in Beijing at the start of next week for a state visit during which energy deals between the two countries will be on the agenda, particularly kicking on a stalled long-term deal for Russia to supply China with natural gas. The two countries are already striking deals on several energy fronts — coal, oil, atomic power and renewable energies, as well as natural gas — as Moscow seeks to expand its sales to what is now the world’s largest energy consumer and Beijing seeks stable long-term supplies to meet its needs.

At the end of August, a Chinese spur to Russia’s Siberian Pacific Ocean pipeline was completed, part of a 20-year $25 billion loans-for-oil deal between struck in 2008 between China National Petroleum Corporation (CNPC) and Russia’s largest oil company, Rosneft, and its largest pipeline operator, Transneft. Earlier last month, China said it would  lend Russia an additional $6 billion repayable in increased coal supplies over the next 25 years. This week, Russia’s Deputy Prime Minister Igor Sechin has been in Tianjin for an annual bilateral meeting on energy, during which three specific oil and coal deals were signed.

Sechin and his Chinese counterpart, Vice-Premier Wang Qishan, also found time to attend  a foundation-laying ceremony for the centerpiece of the oil deal, a new $5 billion joint venture refinery that will be 49% owned by Rosneft, 51% by CNPC. Rosneft will supply some two-thirds of the 10 million metric tons of crude a year that will be processed  by the Tianjin refinery. This will be the first time a foreign oil company has had such a significant presence this far downstream in the Chinese oil industry, and that will be extended in a planned second stage of at least 500 retail gas stations in China.

The 2008 loans-for-oil deal lets China import 300,000 barrels a day of Russian oil for 20 years starting in 2011 on pricing terms favorable to the Chinese side. Russia is hoping that any natural gas deal it can strike during Medvedev’s visit won’t be so one-sided, though the precedents aren’t encouraging. Late last year, tentative agreement was reached to build two gas pipelines with the capacity to deliver 68 billion cubic meters of Russian natural gas per year, but pricing issued have stalled further progress on a delivery contract for the natural gas. Medvedev is likely to propose a scaled back deal to supply 30 billion cubic meters per year. Given the competition from Central Asian natural gas, he may not be able to make much headway on getting Beijing to pay anything approaching market prices, but even getting the negotiations going again would be progress.

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Natural Gas In Chongqing, Or Hot Air?

Given China’s rush to secure energy resources overseas there would be a certain irony to finding a massive natural gas field in its own back yard. Yet that is what may — or may not — have happened.  Chengdu Commercial News quotes a local official saying a Sinopec official had told him that the company has found the largest natural gas field in Asia in Chongqing. That came as news to Sinopec officials in Beijing, who told Bloomberg that the company is checking the report. PetroChina operates China’s largest confirmed gas field, the Sulige field in Inner Mongolia with proven gas reserves of 534 billion cubic meters. The next largest is Sinopec’s Puguang field in Sichuan, which has  verified reserves of 356 billion cubic meters.

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Another Loans-For-Energy Deal

Add Turkmenistan to the lengthening list of countries doing loans-for-energy deals with Beijing. China will lend $3 billion to develop Turkmenistan’s South Yolotan natural gas field, one of the five largest in the world, Turkmen state media reported Saturday (via AFP). Work on a 7,000-kilometer pipeline from Turkmenistan to China, started in 2007, with the capacity to deliver 40 billion cubic meters of gas per year is expected to be finished by the end of the year.

In April, Kazakhstan struck a $10 billion deal with PetroChina’s parent CNPC. It followed similar deals in Brazil (also $10 billion), Venezuela ($4 billion) and  Russia ($25 billion) as Beijing  taps its foreign exchange reserves to buy energy assets. The Turkmenistan deal also gently loosens Russia’s grip on the central Asian country’s gas exports.

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