Russia & China bash Oz LNG with new pipe

Advertisement

While Tony Abbott is shirt-fronting Vladimir Putin, the latter is busy destroying the underpinnings of Australian LNG. From RT:

President Vladimir Putin and Chinese leader Xi Jinping have signed a memorandum of understanding on the so-called “western” gas supplies route to China. The agreement paves the way for a contract that would make China the biggest consumer of Russian gas.

Russia’s so-called “western” or “Altay” route would supply 30 billion cubic meters (bcm) of gas a year to China.

The new supply line comes in addition to the “eastern” route, through the “Power of Siberia” pipeline, which will annually deliver 38 bcm of gas to China. Work on that pipeline route has already begun after a $400 billion deal was clinched in May.

“After we have launched supplies via the “western route,” the volume of gas deliveries to China can exceed the current volumes of export to Europe,” Gazprom CEO Aleksey Miller told reporters, commenting on the deal.

Speaking to journalists on the eve of his visit to Beijing, Putin was optimistic about prospects for the new gas deal with China.

“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”

The “western” route deal is one of the 17 agreements signed at the Sunday meeting between Putin and Xi.

They also included a framework agreement between Gazprom and China’s CNPC on gas deliveries and a memorandum of understanding between Gazprom and another Chinese energy giant, CNOOC.

…Among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti.

chinagas

This is a framework for an agreement not the agreement itself, but it looks pretty ominous. Remember that this would nearly double the planned volumes from the recently agreed 38bcm and would constitute close to 15% of the global LNG market when launched, large enough to supply two-thirds of Japanese consumption.

Moreover, with further capital, these pipelines could expand to 100bcm. They are thought to be able to deliver gas in a range of $10-12mmBtu, below the Australian breakeven costs and roughly comparable with US LNG.

Advertisement

Australian hopes of China being the great expanding gas market of the future were just dealt a severe blow.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.