RUSSIA’S energy giants have major plans to step up their oil and gas supplies into China, and they’re certainly not looking over their shoulder at Australia. By Paul Garvey in Hong Kong.
Senior representatives from four of the biggest oil and gas companies out of Russia and the former Soviet republics – namely Lukoil, Gazprom, Gazprom Neft and KazMunaiGas – took to the stage at the Renaissance Capital emerging markets investor conference in Hong Kong yesterday. The picture they painted of the current state of play may concern those companies behind and investors in Australia’s big liquefied natural gas developments.
It was clear from listening to the quartet that they are intent on further increasing supplies into China.
Europe – the other key market on their doorstep – is deeply sick, only exacerbating the case for growth into the Chinese market.
According to Gazprom’s deputy head of strategy Oleg Ivanov, two years ago China’s dependence on imports was 15%. Now it sits at 25%, and by 2015 Ivanov expects import dependence to grow to more than 50%.
That should be great news for Australia, particularly given all the major LNG export plants due to come on line at that time.
The concerning part, however, is the determination among the Russian companies to support as much of that demand growth as possible.
Asked if Central Asia and Russia could meet China’s gas demand growth on their own, Lukoil’s deputy vice president of strategy Andrei Gaidamaka answered with a definitive “yes”.
The opening earlier this year of the east-west pipeline connecting central Asia into western China was a “revolutionary” moment for the oil and gas industry, Gaidamaka said. Now it is possible – although not commercially feasible – to extract a molecule of gas out of the ground in Algeria, and pipe it all the way for burning in Shanghai.
Lukoil is looking at what China’s new connection into the Eurasian gas market will mean for gas production in Kyrgyzstan, Uzbekistan, Turkmenistan, Azerbaijan and Eastern Siberia, where there are plenty of undeveloped gas reserves.
All of that could spell trouble for the Australian brigade, who must invest tens of billions of dollars to get their LNG projects off the ground.
The Russians feel they can compete with Australian LNG projects on price, and the potentially abundant supplies give China another card to play in arguing with the Australian companies for lower LNG prices.
Fortunately for the Australian players, negotiations between the Russian companies and the Chinese are just as difficult, if not more so.
Gazprom’s Ivanov was matter-of-fact when he stated negotiations over supplying gas from Siberia into Russia were taking time.
Neither party would appear prepared to give ground easily. Gazprom will feel China needs the gas to meet its ongoing energy demand growth and its appetite for cleaner sources of fuel. China will be buoyed by the idea the Europe’s ongoing economic options make it the only sensible market for the Gazprom gas, and therefore entitles it to the pricing power that the position entails.
Those Australian companies pumping billions into new LNG projects will be hoping Gazprom and China take all the time they need.
