Russia & China bash Oz LNG with new pipe

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.


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.

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


  1. ResearchtimeMEMBER

    Wow – this is big news. There was rumour and innuendo, but none expected anything this quickly; gosh, they haven’t even started building the first one yet!. And all the experts suggested a second was a “pipe-dream”!!!!!

    LNG is soooo toast…

    PS – The Russians had better be careful about being too reliant on a particular customer… they need other markets too. Interestingly, that another pipeline via Hungary is now on the cards to by-pass Ukraine (implies that the Russians have a long-term strategy in that region).

    • Last time I looked Hungary is a bit difficult to get to from Russia without going across Ukraine…. not sure how it is planned but it would have to cut across some other EU state.

      • The South Stream pipeline will go across the Black Sea and then through Bulgaria, Serbia, Hungary, Austria and down into Italy.
        Most of those countries are EU/NATO members but although they’d benefit hugely from the project they’re also small and economically vulnerable.
        There has been a lot of global politics going on with the USA doing all it can to scupper the South Stream project and keep Russian gas delivery to Europe mostly reliant on the Ukrainian route.
        Germany has the advantage of additional access via the Nordstream pipeline, thanks largely to the initiative of former chancellor Gerhard Schroeder.

      • Shah Deniz II is on track to deliver first gas to Turkey and Georgia 2018, and into Europe (initially Bulgaria, Italy, Greece) by 2020, eventually to supply ~20% of Europe’s gas needs.

        Russia needs the deal more than China.

      • “initiative of former chancellor Gerhard Schroeder.”

        A man being vilified by the German bought and paid for “free” press for having the gall to be mates with Putin and actually using his brain when it comes to geopolitic. The USA is leading us into ruin.

    • That’s pretty much what the Russians are doing.
      Opening alternative markets.
      They realise now that they have been too reliant on Europe.

    • They have been trying to get South stream off the ground for many years to provide an alternate route bypassing Ukraine for European gas. They are facing the usual retraint of free trade and markets from the American side via their obedient lap dog NATO.

      Free markets and democracy are only ok if it’s in the US interests. Steal their customers or expand your influence unduly then it’s not allowed.

      The Russians are onto it. Conventional + existing pipes in Ukraine, Southstream (if they can get this done) to dominate Euro market and now two pripes to the East to tap that market. They are also moving to secure Arctic deposits as continued thawing allows their nuclear powered ice breakers to go further into the shelf for longer.

  2. LNG is not toast. There is a lot to play out here. The major driver in the industry is as much energy security as price). Shale and seam gas are also important factors here as is what happens in the US re exports. . VP was reamed 1000 new ones by the PRC on his last deal but of course having pushed the Europeans toward the US and shale/seam he has to look east. He will still want to sell gas to Europe though. PRC and Russia are traditionally antagonistic toward one another so it would be a surprise if PRC wants to put all it’s eggs in the Russian basket. But a good mou to have when negotiating price with Oz and others. Also PRC has extensive se gas of its own so may develop these reserves too.

    • The influx of supply is the last thing LNG needs to worry about.

      Emerging technologies are going to smash LNG clean out of the water over the next decade.

      I don’t even know why Russia is bothering.

      • “Emerging technologies are going to smash LNG clean out of the water ”

        These tech are not really that emerging. Been around for a while, just some improvements. The real issue is the cost of getting all the shale extracted as it requires a massive amount of drilling, but more important will be how be how fast these wells depelete.

      • ResearchtimeMEMBER

        Ridiculous statement Lev – a bit like the EU talking about cutting CO2 (based on as yet unknown technologies) on one hand and building coal fired power stations on the other…

  3. GunnamattaMEMBER

    I did say this was coming…..

    This is just a heads of agreement type thing, but there is no doubt that the Chinese will buy Russian gas (nailing prices to the floor while the Russian economy is under the pump) in massive volumes.

    The bypassing of Ukraine to get to Hungary (in Europe) will be through the Northern pipeline route through Belarus. Also bear in mind that the Southstream pipeline is intended to come to a massive transfer station and storage in Hungary.

    But at the moment, while the sanctions on Russia are working insofar as they are driving the Russian economy into recession, they are driving the Eurozone economy further into recession – and I would expect the average Russian a little more capable of doing hard economic times than many of their EU counterparts.

    • Russias “retaliatory” sanctions thus far have been meek. The restraint shown by Putin in both this regard and militarily in the face of extreme and unrelenting provocation from the West and pressure from hawks within the Kremlin boggles the mind. In his shoes i would have taken Ukraine and run up their flag in the middle of Kiev already and threatened Germany and the rest of NATO with a nuclear holocaust.

    • According to Moscow Times, a renowned Russian English-language daily newspaper, President Recep Tayyip Erdoğan who stepped up his customary belligerent rhetoric against the Syrian government of Bashar al-Assad, told his Russian counterpart that Turkey has allegedly reached a threshold where it cannot remain indifferent toward the “human carnage” in the Arab war-torn country, but to Erdoğan’s surprise, Putin was infuriated and vehemently warned Turkish President from further interfering in Syrian internal affairs otherwise Russia is ready to thwart Turkey from triggering a catastrophic war in the region.

      The Turkish flabbergasted president then asked Putin whether his fiery remarks meant a direct threat against Turkey and Putin replied:” Mr. President, You may construe whatever interpretations you wish from my words.”

    • My understanding is that Europe, after gas supply issues some years ago, has been ensuring other sources of supply (although Nabucco from Turkey to Central Europe has been left on the drawing board), and one would assume the focus and cooperation has become more acute, thanks to Putin’s actions.

      Putin’s agreement with China raised as many questions as answers, Rosneft and Gazprom bickering, Chinese not only have other sources, their demographic and economic dominance will be growing….. The Economist did a great image after this rushed (discounted) deal from Russia’s end, the Russian bear being slowly digested by the Asian boa constrictor (representing not just Chinese but Mongols who had occupied and influenced the Russian lands and psyche in the past).

      With respect to Turkey, and Erdogan, Putin described him as a ‘dictator’ etc. etc., surely the pot calling the kettle black, think this is related back to the Crimea and Central Asia.

      Tatars who have been screwed continually by the Soviets, now the Russian federation, are highlighted often in Turkey, and no doubt Kazakhstan and any republic in the CIS with Russian populations are now also very wary of Putin’s actions as in Ukraine… in central Asian republics there is a common thread which Putin may not want to reawaken when they are under threat, Islam.

      Late 10th century, Rus or Kiyevan emissaries visited Constantinople (then Byzantium now modern day Turkish Republic) and were mesmerised by the beauty and how the emperor embodied god on earth and his word was sacrosanct, accordingly for the Slav speaking regions of now eastern Europe adopted the orthodox religion. A form of state tied up with religion just like Putin and Erdogan’s preferred forms of govt. or state, who would have guessed?

  4. Vladivostok was announced over 2 years ago. The Australian LNG dream has been an act of wilful ignorance ever since. It is levitating.

    Let’s face it, the execs of big gas companies behave exactly like execs of big mining companies. They paint blue sky forecasts so they can close out massive capex budgets and reap the short term bonuses that those projects entail. To hell with the long term. LNG will be where iron ore is now in a couple of years – oversupplied and unwanted.

    Reap it Australia.

  5. Don’t trust anything that RT says, those 60bcm is way less than what Ukraine alone used to buy until recently and I doubt the rest of Europe is buying less than that. This info is to convince the outside world and a Russian citizen that Russia has China as an ally except only winner is China and Putin’s friends that sell pipes, google about it

  6. One question – anyone?
    What percentage of our delivered LNG price to Asia would be overheads due to current mining wage levels? Or, put another way, would we have to reduce them (and by how much) to be competitive.

    • Rob, the mining wage levels can be assumed to be a factor of the cost of extraction of the gas. That is all the up front costs to first locate the gas and obtain the permits to drill, then install the well, then connect the well to the supply line to the compressor station, then add in factored costs to maintain and decommission the well, and restore the environment, over the course of its life. What is occurring is that the planned gas is not there and the life of a well is considerably shortened, most say less than 12 months. What happens then is that more wells have to be installed on a closer spacing till the country side looks like the side of MH17 that took the blast from the missile. Some say wells spaced at 500m intervals. Then the cost of the installation and upkeep of the well exceeds its benefit. Some say we are already at that stage, hence the discussion about extensive drilling in the Cooper basin and the installation of a pipeline from Darwin to make up the shortfall of gas. In any event the GLNG projects are nearing completion and they have to operate at reduced throughput hence the return on the investment by the owners will be a hurdle too high. Add to that the falling price of their product and again the projects are unprofitable. From the moment they ship the first tonne of LNG, they will be making a loss and using up a resource that can be better used here in Australia. These gas projects are not profitable at any factored costs of the personnel who are required to supply the gas, the only benefit they were supposed to bring was taxes on the costs of the materials and labour used in the construction and on going royalties from the exports.
      Well the projects are nearing completion and the labour force is all headed for newstart allowances, and the gas companies themselves will be pushing hard to have royalties eliminated so the price of their product does not restrict it form the market. Any proposed benefits are thus wiped out.
      Its a hell of a mess, and how it unravels is anyone’s guess, but it will be worth watching.WW