Russia: Can The Gas Empire Strike Back ??
27/05/2013 Deja un comentario
(…..) For time being, Gazprom’s stubborn adherence to oil-based pricing endures in Europe because customers remain bound by contracts. But in Asia, which will drive the global gas demand in the coming decades, Gazprom’s insistence on an oil-based pricing structure jeopardizes its ability to Access Chinese market, which will not accept prices as high as those paid by the European consumers of Russian gas. China National Petroleum Corporation sells gas at prices fixed by Chinese government and would incur serious losses if oil prices rose and increased the cost of gas imported from Russia while domestic gas prices remained fixed (…..) The chinese shale deposits tend to lie deeper and are harder to fracture than those in the U.S., obtaining water supplies for fracking and pipeline access to get gas to market remain challenging. Nevertheless, Chinese firms and their foreign partners combine capital, will, expertise in a way that makes breakthroughs likely, even if large-scale production does not commence until 2018-2020 timeframe. Beijing’s robust political commitment to clean up polluted air in Chinese cities will drive the shale gas development and if China and Russia do not reach a gas deal within 12-18 months, the only way Russian gas will get into Chinese market would be through slashing prices and seeking to displace existing supplies, not an attractive prospect when the pipeline to deliver gas to Xinjiang from Siberia would likely cost at least US$14 billion. Despite time pressure, Gazprom is so far not making serious investments in a truly Asia/China-oriented gas supply system. For instance, the company plans to invest US$15.2 billion in 2013 and 2014 to develop gas fields in Northwestern Siberia’s Yamal Peninsula but only US$1.9 billion in all of eastern Siberia during that timeframe. This investment mismatch is critically important because it signals that Russia intends to sell gas from the same Western Siberian fields to both Europe and China, a scenario China will vociferously oppose because it would allow Moscow to play Chinese and European gas consumers against one another in quest to force China to pay higher prices for Russian gas. Instead, China likely wants to see Russian pipeline gas supplies come from geographically “stranded” fields deep in the taiga of Eastern Siberia, in particular supergiant Kovykta and Chayanda Fields near Irkutsk and in Yakutia, where China would be priority market. But for this to happen, Gazprom must abandon oil-linked pricing and accept China as the largest and most accessible market for East Siberian gas. The ball is in Gazprom’s (and by extension, Kremlin’s) court. A major signal will come later this year when the Russian government decides whether to break Gazprom’s gas export monopoly by granting Novatek, a major Russian gas producer, a license to export LNG from a large terminal it is building on Yamal Peninsula. The Gas Empire has the means to strike back, it can revise pricing methods, leverage massive conventional fields whose productivity is something U.S. gas producers can only dream of, and structure creative deals such as allowing China to make a large upfront payment for future gas supplies that funds new fields in Eastern Siberia, or allowing CNPC to purchase equity stakes in the Russian fields to offset losses caused by domestic price controls. Question is how many more market share points and rubles Gazprom must lose before it finally adapts to a changing global gas market.