The first increases gas supplies through the pipe, the latter wants to become a major exporter of LNG.
A significant event of the year in the world gas market happened on April 25 – in the choking smog of Beijing, the Chinese government presented a new plan for the development of the country’s energy sector, calculated until 2030. The title of the document indicates that the revolution is going on in the structure of production and consumption of energy in the Middle Kingdom. It should be ensured, including a gradual transition from coal to gas generation.
Since 2000, the share of natural gas in China’s energy balance has almost tripled to 6.3%, by 2020, 10% is planned, and by 2030 – up to 15%. This makes China the main point of growth of the gas market. The forecast of the International Energy Agency (IEA) suggests that the increase in gas consumption in China by 2030 will exceed 600 billion cubic meters. m per year (in 2016 there were 205.8 billion cubic meters, according to the Chinese Energy Research Institute). On import it is necessary almost 50%, analysts of the IEA consider. The country adheres to the principle of supply diversification, which is becoming one of the drivers for the growth of the liquefied natural gas (LNG) market.
IEA predicts that after 2030 the share of LNG in the total volume of inter-regional gas sales will gradually increase to 60%. In 2017, Japan remains the main consumer of LNG, China – in second place (import of about 38 million tons of liquefied gas, the Thomson Reuters estimate). It is clear that it is China that will be the key player in determining the conjuncture of world gas markets, said Tatyana Mitrov, director of the Skolkovo business school energy center. “The US is ready to fully meet its needs. The European and Japanese markets are too mature and saturated, but China is the most promising national market in terms of volumes and at the same time, due to the specifics of the decision-making system in the country, fully regulated by the government, “Mitrova explains. The announcement of the new strategy is an important event not only for China, for the whole world as a whole, she believes.
The largest Russian gas producers aspire to get their share of the Chinese gas pie, but they follow different strategies.
Supported by favorable weather conditions and growing demand for gas in Europe, Gazprom announced a record in 2017. Exports for the year are expected to exceed 190 billion cubic meters. m of gas.
The company continues to do what it does best: build pipelines. The hostage to the method of monetization of gas reserves, created in the USSR, and the owner of 171,400 km of gas pipelines that he inherited, most of the money Gazprom directs to the construction of just three new export pipelines. In 2017, Gazprom built 1,585 km of the Siberian Force (a pipe to China) and the Turkish Stream (to Turkey), and in May 2018 plans to begin laying the offshore section of the North Stream-2. The company actively invests in the development of the resource base.
All three pipelines are planned to be put into operation no later than 2019. Not without resistance from the European Commission, but the Turkish Stream and the second Severny are likely to allow Gazprom to retain a share in the European market at 33-34% of the total European gas imports. The beginning of deliveries under the “Force of Siberia” should mark the exit of “Gazprom” to China. Interested in having to stake out a new market, Gazprom has drastically accelerated the construction of the pipeline to the east. Deliveries under the contract with CNPC will begin in the end of 2019, for one and a half year earlier, than could. True, 38 billion cubic meters are provided for by the contract. m per year Gazprom will be released only by the mid-2020s. A week ago, Gazprom said that an agreement had been reached on supplies to China from the Far East. In the autumn, it was reported that the negotiations on the “western” route – the former Altai project (up to 30 billion cubic meters per year) had been resumed. It has been discussed since 2006.
The plant in Yamal
Novatek, which is one of the three largest producers of gas in Russia, in December loudly announced itself to the whole world, launching the Yamal LNG project. This is the main event of the year in the Russian gas industry, says Dmitri Marinchenko, Director of Fitch Ratings. “One of the world’s largest LNG projects, the first project beyond the Arctic Circle, implemented within the budget and on time despite sanctions and difficulties with obtaining project financing is a rarity for the industry. The project is unlikely to have taken place without the support of the state, but another thing is important. The first LNG plant in Russia in the last eight years was launched by a private company, not by Gazprom or Rosneft, Marinchenko said.
After the launch of Yamal LNG Novatek presented a new development strategy until 2030, at the end of the year it acquired licenses for five fields and license areas with total resources of over 3.5 billion barrels. n. e. (taking into account the 50% stake in Arktikgaz).
Purchases and increase in reserves at the fields should allow Novatek to compensate for the drop in production and fix a share in the domestic market, although it is no longer a priority for the company. The goal of Leonid Mikhelson, Chairman of the Board of Novatek, is to make Novatek one of the largest players on the world market. Until 2030 the company is going to invest another 2.5-2.8 trillion rubles in the construction of new LNG plants in Yamal and Gydan. (comparable to Gazprom’s investment program for 2018-2019). The total capacity of the liquefaction lines to be achieved is about 55 million tons of LNG per year (about 76 billion cubic meters of gas). With Gazprom’s export volumes, this is still incomparable (the forecast for exports in 2016 is more than 190 billion cubic meters). On the other hand, until December 8, 2017 (the date of shipment of the first batch of LNG to the tanker Christophe de Margerie) from Russia, no one except Gasprom exported gas.
Low operating costs – about $ 3 per 1 million British thermal units, including transportation (Moody’s valuation), will allow Novatek to compete successfully with the world’s LNG producer. Each line of Yamal LNG (5.5 million tons per year), with the available privileges and current prices for LNG, can generate about $ 1-1.2 billion of annual operating profit, Fitch experts say. If Novatek builds two more similar plants in the Arctic by 2030, the total operating profit of its LNG projects may reach $ 10-12 billion per year.
Two big differences
The approach of Gazprom to the issue of strategic development is rather inertial-reactive, Mitrova shares. “The company is trying to adapt to changes in the global market, but as far as possible, preserving the traditional business model. “Novatek”, on the contrary, initially grew and developed due to the flexibility and the seizure of new niches, actively introducing new approaches and business models, “she said. “Novatek” is a more dynamic company, which is easier to make complex strategic decisions, agrees Marinchenko. “In many respects it is a function of the size – the more the company, the more bureaucracy. Large companies often exist on the principle of “whatever happens”, especially if it is a former ministry, “says Marinchenko. Novatek was able to quickly see the trend for a serious growth of the role of LNG in the world and adapt its strategy for it, he believes.
2017 was a good year for Russian gas exports, Mitrova is convinced. “Against the backdrop of the cold previous winter and relatively low prices for Russian gas, Gazprom, operating in accordance with its traditional strategy, managed not only to maintain a market niche in Europe, but also to expand it. And Novatek, acting within the strategy of entering new markets and seizing new niches, launched the Yamal LNG project and has already begun spot trading. This “division of labor” between the main players looks quite reasonable, given their different competencies and approaches to doing business, “Mitrova said. The key question: what results will the traditional strategy give in 2018, when, according to forecasts, prices will rise, and winter promises to be warm, she concludes.
Author: Artur Toporkov
Article in Russian: Vedomosti