Daily Energy Report
China’s Russian gas imports, IEA’s forecast on fossil fuel demand, OPEC’s March output, obstacles to achieving climate goals in Europe, oil deal between Congo and Angola, and more
CHART OF THE DAY:
If China Overtakes Europe as Russia’s Main Gas Market, Will It Be Able to Absorb All Russian Imports?
Figure (1) above shows the contracted gas volumes between Russia’s Gazprom and the China National Petroleum Corporation (CNPC). Based on these contracts, Russia can replace most of the European gas market it lost after its invasion of Ukraine with China’s market. However, Moscow will likely face problems in the next 2-3 years unless Europe keeps importing some Russian gas.
There are two long-term gas deals signed between Russia and China. In 2014, Gazprom and CNPC struck their first long-term agreement for the supply of up to 38 billion cubic meters (bcm) per year of Russian gas via the Power of Siberia 1 (POS-1) export pipeline. The 30-year gas deal is worth some $400 billion and was signed years after difficult negotiations on the price. The Chayanda field in Russia’s Siberian region of Yakutia is the primary source of gas supply to the pipeline which started to transport gas to China in late 2019. In 2020, Gazprom shipped 3.9 bcm of gas to China which significantly rose to 10.39 bcm the following year.
Last December, the Power of Siberia natural gas pipeline became fully operational after bringing on stream the second gas field, Kovykta, to supply the pipeline in Irkutsk Oblast and the Kovykta-Chayanda section. With the newly started section, Russia is now able to ship over 22 bcm of gas per year to China in line with the delivery terms agreed on with Beijing. In 2022, gas supplies regularly exceeded daily contracted volumes in response to China’s request, Gazprom data shows. The EOA’s revised estimates show that Gazprom shipped 15.5 bcm of gas in 2022 through the Power of Siberia 1 to China, 50% higher than delivered volumes in 2021. Gazprom is scheduled to increase its exports to 22 bcm in 2023 but the pipeline is not expected to reach its design capacity of 38 bcm per year until 2025.
The second 30-year gas deal between Gazprom and CNPC, was signed in February 2022 for the delivery of 10 bcm per year of Russian gas via a new pipeline (Power of Siberia 3, POS-3) from the Far East Island of Sakhalin across the Sea of Japan to northeast China. Both state-owned companies have agreed to settle the new gas sales in euros and planned for the first gas deliveries in 2025 which would later increase up to 10 bcm per year around 2026 as shown in Figure (1) above.
With respect to the proposed Power of Siberia 2 (POS-2) pipeline, and once a gas deal is signed, Russia will be able to double its annual contracted gas volumes to China from 48 to 98 bcm by 2030. But the question is whether China’s economy will be able to absorb this big boost in gas imports from Russia.
Another issue is energy security. As we discussed a few times in the past, the increased interdependence between both countries on natural gas could prove to be a miscalibration one day. The US supported Europe with gas and oil amid its energy crisis following Russia’s invasion of Ukraine. But if China’s relations with Russia deteriorate in the future, the US will not be there for Beijing. For this reason, China will likely store more oil and gas than ever as part of its contingency plans.
STORY OF THE DAY
ENERGY INTELLIGENCE: Fossil Fuel Demand Falling Faster Than Thought: Birol
REUTERS: China's March coal imports rise to three-year high
REUTERS: China doubles down on coal ahead of potential summer blackouts
REUTERS: Train crunch to spur coal imports by Indian industries
REUTERS: South African coal exports increase by nearly 40% m-o-m in Mar'23
According to the executive director of the International Energy Agency (IEA), Fatih Birol, global demand for fossil fuels is dropping at rates higher than previously expected, Energy Intelligence reported. Birol said that demand could peak by the late 2020s "as a new global energy economy is emerging much faster than we had imagined."
The related news stories above show a large increase in the use of coal in India and China!