Caixin
Jul 20, 2018 08:58 PM
BUSINESS & TECH

China Receives First Russian Gas Delivery Via Northern Sea

The Vladimir Rusanov, a natural-gas carrier for the Sino-Russian Yamal LNG project, docked at Rudong, Jiangsu province, on Thursday. Photo: VCG
The Vladimir Rusanov, a natural-gas carrier for the Sino-Russian Yamal LNG project, docked at Rudong, Jiangsu province, on Thursday. Photo: VCG

China this week received its first delivery of liquefied natural gas (LNG) from one of the world’s most ambitious LNG projects, in Russia north of the Arctic Circle, just seven months after it began production.

A vessel carrying LNG from the $30 billion Yamal project completed its 23-day journey along the “Northern Sea Route” (NSR), starting from the plant on the Kara Sea in northern Siberia before traveling down through the Bering Strait and arriving at Rudong Port in East China’s Jiangsu province on Thursday. The ship was greeted in an arrival ceremony there by the general manager of China National Petroleum Corp. (PetroChina), which has a 20% stake in the project; the Jiangsu vice governor; and a large gathering of other local officials.

The Chinese government-backed China Silk Road Fund also holds a 9.9%. stake in the project, with Russia’s independent Novatek holding 51% and France’s Total SA holding the remaining 20%.

The journey marks the first-ever LNG shipment to China along the NSR, which has the potential to halve the current shipping time of 30 days it takes to use the westward route from Russia via the Atlantic, the Mediterranean Sea and the Suez Canal. While the NSR is currently navigable only between June and November, when Arctic ice retreats, the warming global climate is expected to keep it open longer.

The maiden LNG delivery is the tip of the iceberg in terms of the project’s importance to China. PetroChina forecasts that exports to China from the Yamal project will reach 4 million tons a year in 2020, accounting for a quarter of Yamal’s production. This would constitute 2.6% of China’s current total consumption of gas in all forms, according to the National Bureau of Statistics.

China has increased its LNG consumption substantially in recent years as it looks to reduce the environmental damage caused by its current heavy reliance on coal for power generation. Last year, LNG consumption rose by 46% to 38.13 million tons, allowing China to surge past South Korea to become the world’s second-largest LNG importer after Japan. LNG imports jumped a further 58.2% year-on-year in the first fourth months of 2018, according to the General Administration of Customs.

China’s rapidly increasing consumption of natural gas and LNG looks set to continue, with Chinese firms investing in several major production projects around the globe. In November, China Petrochemical Corp. (Sinopec) signed a deal worth up to $45 billion to develop energy resources in Alaska. The same month saw China Energy Investment Corp. Ltd sign a major deal to develop shale gas reserves in the state of West Virginia.

China is also ramping up its ability to handle LNG deliveries. In April, Sinopec announced plans to more than double its annual natural gas and LNG capacities to 60 billion cubic meters and 23 million tons respectively. The extra capacity will also support the development of newly discovered shale gas fields in West China’s Sichuan province.

Despite the enthusiastic embrace of LNG, substantial challenges remain, analysts say. In particular, the U.S. projects have been put in doubt by ongoing trade tensions between Washington and Beijing. Some producers are also concerned that there may be insufficient demand to justify the projected expansion of supply. In July 2017, the $36 billion Pacific Northwest LNG project in Canada was canceled after the companies involved, including both Sinopec and China Huadian Corp. Ltd., decided they could not ensure a sufficient return on their investment.

The Pacific Northwest cancellation should serve as a warning to other major projects, according to Wen Wang, a senior analyst with consultancy Wood Mackenzie. “Not all the projects can progress to a final investor decision (FID). There’s a lot of competition on the supply side right now. A lot of the pre-FID projects have been proposed because the market clearly doesn't need all that volume and so only a small number of the projects will go ahead,” Wang said.

However, she remains upbeat about the prospects of projects already in motion. “Some of the projects have a higher chance of making FIDs than others, especially those that already have reached certain milestones in marketing and those that have strong equity partners,” she said.

Contact reporter Ke Dawei (daweike@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY