Caspian Report - Issue: 08 - Fall 2014

term contracts to deliver at least 50
bcm per year through 2030. 6 China
is therefore becoming a major competitor
for international supplies
of LNG, but several factors could
limit the scope of this transformation,
or change its spin. The first is
the actual pace of the Chinese final
demand, since current assumptions
are based on the strong long-term
growth of the Chinese economy, a
trajectory which is far from certain.
Even assuming a massive increase
of final demand, another threat to
LNG demand is looming: competition
from piped gas. Unlike Japan
and South Korea, China can rely
also on imports via pipeline, arriving
from three sources: Central Asia,
Myanmar and Russia. Pipelines running
from Turkmenistan to Western
China are the most important, with
a capacity of 30 bcm per year and
an undergoing expansion up to 80
bcm per year. In addition, a smaller
pipeline is linking offshore field in
Myanmar with Southern China, with
a maximum capacity of 12 bcm per
year. Eventually, after May 2014
agreements with Gazprom, a brand
new pipeline will connect Eastern
Siberia with North-eastern China,
with a capacity of approximately 40
bcm per year by 2020. All in all, by
the beginning of the next decade, the
Chinese gas system will boast an annual
import capacity of more than
150 bcm via pipeline.
EVEN ASSUMING A MASSIVE INCREASE OF FINAL DEMAND,
ANOTHER THREAT TO LNG DEMAND IS LOOMING:
COMPETITION FROM PIPED GAS.
Even considering an adequate level
of spare capacity, the combined import
capacity will exceed Chinese
demand at least until the beginning
of the 2020s. This situation will affect
the global market; LNG exporters
will have to compete with both
other LNG producers and with exporters
of piped gas. Unlike the current
situation, wherein Japanese and
South Korean importers lack alternative
sources and are forced to pay
a high price for LNG, major consumers
will have more market power. As
a consequence, current price differentials
– up to 100% – between
Eastern Asian markets and other
markets are likely to shrink.
India will also play a smaller though
still relevant role in the evolution
41
CASPIAN REPORT, FALL 2014
6.
See EIA, Report: China, 04/02/2014 update.