As Moscow was increasingly looking for new energy partners, the $400 billion gas contract to deliver 30 billion cubic meters of Russian gas to China in the next 30 years opened up new markets for Russia's gas supplies in the Asian region.
Asia is now the fastest growing region for natural gas consumption in the world, according to the International Energy Agency (IEA). By 2015 the agency says it will become the second-largest market overall with demand expected to surpass 790 billion cubic meters of natural gas. In China alone, annual demand for gas is expected to reach 420 billion cubic meters by 2020, and to grow by around 14% through to 2030.
In its turn, China is looking for new sources of natural gas to meet its future energy needs and reduce its dependence on coal as its main fuel for power. Under Beijing's current natural gas policy, gas will increasingly be used to run cars, trucks, trains and ships. Assuming the expected rate of China's growth and thus its energy needs, the numbers are truly phenomenal, says Alex Griffiths, Managing Director and Head of Natural Resources and Commodities at Fitch Ratings in London:
“If you assume Chinese growth at about 7%, then in the next 20 years if nobody in the world makes efficiency savings the world energy usage is going to double, and all of that growth is driven by the Far East and by China, so the fact that Russia has been able to conclude this agreement with China is a great first step,” Alex Griffiths said.
Indeed, that was just the first step, followed as many had predicted by the second one – the signing of a number of documents by Russian and Chinese energy majors Gazprom and CNPC in November, including a framework deal to deliver gas to China via the western route pipeline. Market watchers – including Dr. Fred Beach, an assistant director for policy studies at the University of Texas’ Energy Institute in Austin – say more agreements between the two neighbors are most likely to follow.
“I think that is probably just one of what may be a few more deals to come. It makes sense for China to be buying gas and in the future oil from Russia, I think that will be a growing trend as China’s demand grows. [07.33] And just as China doesn’t want to become wholly dependent on a single supplier, Russia would like to have as many customers as possible,” Dr. Fred Beach said.
Historically, Gazprom’s challenge has been to find more ways to monetize its 23 trillion cubic meter gas reserves. By entering the world's fastest-growing gas market now, Gazprom takes a major growth opportunity for years and decades to come. And it could not have happened at a better time for the company, as its relations with European partners have had a rough ride.
Another lucrative deal that was signed between Russia and India, the world’s fourth biggest energy consumer two years ago, came into effect June 2014. A long-term agreement on LNG supplies between the Gazprom Group and India's GAIL provides for the delivery of 2.5 million tons within the next 20 years. India will start receiving shipments of liquefied natural gas from Russia in 2017.
