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Russia to need Yamal-to-China gas pipeline more than ever – OIES

Gas Materials 31 March 2022 16:34
Baku, Azerbaijan Trend News Agency Leman Zeynalova
Russia to need Yamal-to-China gas pipeline more than ever – OIES

Russia will now need the Yamal-to-China route more than ever, Trend reports with reference to Oxford Institute of Energy Studies (OIES).

OIES points out that the 10 bcma supply deal signed on 4 February 2022, before the Russian invasion of Ukraine, heralded a deepening of Sino-Russian energy ties.

“While the deal does not materially impact short-term balances, it allows a greater diversification of foreign trade options for both countries. The conflict in Ukraine has created a new reality in which Europe is going to reduce its energy dependence on Russia as soon as possible. Russia must therefore accelerate its Pivot to the East. From China’s perspective, the additional 10 bcm comes at an opportune time, with rising gas demand in China and in the context of highly volatile global LNG markets, but these incremental flows are still unlikely to materially dimish China’s appetite for imported LNG, nor should they be taken as a sign that an additional pipeline deal is imminent. What is clear, however, is that China is a clear winner, since it would be able to use its leverage to secure Russian oil and gas at discounted prices,” reads the latest report released by the Institute.

The report shows that the additional 10 bcma of Russia pipeline supplies have, to a great extent, already been factored into China’s own future balances and as a result, are likely to have limited impact on LNG demand growth.

“Notwithstanding the potential for further dramatic price spikes through 2022, in the coming years, pipeline volumes in the Jing-Jin-Ji area may compete with LNG on a price basis, but they are unlikely to significantly diminish China’s appetite for imported LNG. This is because gas demand in China has historically been constrained by supplies and if cost-competitive and reliable supplies become available, local governments will be able to incorporate more gas into their economies,” said OIES.

Moreover, the Institute analysts note that LNG demand is set to grow as liberalisation efforts continue, allowing new entrants to capture market share.

“China’s decision makers will want to ensure a variety of supply sources and will not be averse to a seeming oversupply of gas that will allow the country to fill storage, meet peak demand, and use any potential excess for trading purposes,” the report says.

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