China-RF Gas Deal Likely to Challenge Middle East’s Grip over Beijing
OREANDA-NEWS. June 11, 2014. Qatar may be the most immediate loser after the USD400 billion deal inked last month that involves Russia’s energy giant Gazprom supplying China National Petroleum with 38 billion cubic metres of natural gas over 30 years. Qatar has been increasingly redirecting LNG exports from Europe to Asia, partly to achieve a better price for its deliveries.
An estimated 16.4 per cent of China’s gas came from Qatar in 2012, according to BP, the energy company. Barclays estimates about 10 per cent of Qatar’s gas is delivered to the world’s second biggest economy.
“With Russia’s aggressive stance to diversify markets, and Australian supply coming online, the question is whether Qatar will remain immune to the competition,” said Alia Moubayed, the director and head of research for Mena at Barclays. “We do not see any immediate risk as a large part of Qatar’s contracts are long term and oil-linked. But in the medium-term the changes in the global LNG markets could become a major challenge to Qatar.”
China secured the gas at USD 10 per British thermal unit, a standard industry measure, a 30 to 40 per cent discount on long-term LNG contracts. The rate will give China more power to bargain for lower prices in gas contracts with future suppliers.
Still, the deal leaves the door open for other global suppliers including Qatar and Yemen, another Middle East producer, which supplied 2 per cent of China’s gas in 2012, according to BP. By 2018 Qatar will still account for only about 10 per cent of China’s total gas consumption, estimates Gordon Kwan, the head of regional oil and gas research at Nomura, the Japanese bank, in Hong Kong.
“We believe there is plenty of room for China to secure other sources of gas through domestic shale gas production in addition to LNG imports from Middle East, Australia, Indonesia, Malaysia and recently Papua New Guinea,” he said.
The deal is regarded as important for Russia as it is for China. As relations have soured in recent months with Europe – its primary gas consumer market – Russia has redoubled efforts to send a third of its gas exports eastwards by 2035. But it also signals China’s eagerness to diversify its energy sources – both in terms of geography and commodity.
China’s rapid economic emergence in recent years has been largely fuelled by oil from the Middle East. According to a recent HSBC report, the Mena region delivered about half of China’s overall oil imports last year, up by 10 percentage points from 2006. Saudi Arabia alone supplies almost 20 per cent of the Asian powerhouse’s imported crude, the bank estimated.
But the rise in the proportion of China’s energy imports from the Middle East may slow as the country looks to providers elsewhere.
“The Chinese government is actively engaged in securing additional imports from other regions,” said Francisco Quintana, the senior economist at Asiya Investments, a Kuwait-based investment company. “Exports of oil and gas from the GCC will not come down. But their share of the future pie will come down.”
That could cool the rapid growth in oil receipts trade with China has brought the GCC in recent years.
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