China-Russia to Deepen Natural Gas Cooperation

The Sino-U.S. trade war affected not only China’s capital market and the manufacturing, but also its effort to extend the gas resources pool. China is worried about purchasing overseas gas from only one to two major origins. Benefited from the shale gas revolution, the United States is becoming a main natural gas producer gradually. However, obviously, it is impossible for China to buy more from America during the conflict, especially when considering that the major gas importers in China are NOCs. Now Russia seizes the opportunity: During President Xi Jinping’s visit to Russia, China and Russia signed agreements and contracts in multiple industries, including energy cooperation.

As the neighbour of China, Russia has abundant natural gas resources. According to the 2035 Russia Energy Strategy (Draft), Russia plans to export 31% of its annual natural gas output to the Asia-Pacific by 2035. In fact, the cooperation between the two countries in the natural gas industry has already begun. The China-Russia Pipeline will start by the end of the year, and this pipeline could transport 38 bcm of gas every year in the future. China’s companies have also invested in the Yamal LNG Project, and the cargoes from the Arctic has already arrived in China.

The new cooperation will base on the old Yamal Project and the new Arctic LNG2 Project. This project is located in the Salmanov Condensate Gas Field of Gydan Peninsula in Yamalo-Nenets Autonomous District. This region has abundant oil and gas resources and is one of the largest natural gas producing areas in the world. Moreover, the natural gas output in this district takes up about 80% of that in Russia and 15% or so of that in the whole world. Previously, the Yamal LNG Project started in this region and ran at full capacity by the end of 2018. Novatek cooperates with Total (holding 20% shares of the project), CNPC (20%) and Silk Road Fund (9.9%) on the Yamal Project.

The Arctic LNG2 project covers resource exploration and development, engineering design, LNG production and sales, module construction, etc. Novatek plans to adopt the construction mode of gravity-based structure (GBS) and modularization to build 3 LNG production trains. The capacity of each is 6,600kt/a, and it is estimated that the project will be divided into 3 phases and put into operation in 2023, 2024 and 2025 in succession.

Novatek said Saudi Aramco, Total, CNPC, Mitsui and KOGAS showed interest in the Arctic LNG2 Project. Novatek wants to sell over 40% shares of the project. In May 2018, Novatek sold 10% shares to Total. And on April 25 this year, Novatek said that it had sold 10% shares to CNPC and another 10% to CNOOC at the same condition. Meanwhile, a source closed to Saudi Aramco said Saudi Aramco had quitted the negotiation. According to Novatek, it is expected that over 80% of the output of Arctic LNG2 Project will be sold to Asia-Pacific.

China and Russia will also set up new companies focusing on natural gas trading and chemical areas.

On June 5, China Petrochemical Corp (Sinopec), Russia’s Novatek and state-run lender Gazprom Bank signed an agreement in Moscow to set up a joint venture to market natural gas and liquefied natural gas (LNG) in China.

Dai Houliang, the president of Sinopec and Leonid Viktorovich Mikhelson, the chairman of Novatek, signed this agreement, witnessed by Xi Jinping and Vladimir Putin. According to the agreement, this joint venture will buy LNG from Novatek and sell to clients in the Chinese market. The cooperation will start after all vetting procedures have been completed.

Sinopec and Sibur Holding signed Amurskaya Oblast Natural Gas and Chemical Project’s framework agreement. The agreement was exchanged between Dai and Dmitry Konov, Chairman of the Management Board at Sibur Holding. According to the agreement, Sinopec will hold 40% of this project’s shares.

The Amurskava Project has been another in-depth and practical cooperation since Sinopec became the strategic investor of Sibur. They will cooperate with each other, share the best practical experience in the industry and exploit their advantages to the full, making this project one of the excellent examples which bring cooperation to the downstream petrochemical industries. This partnership will strength those two companies’ expertise and experience and maximize their efficiency in building new projects.

CNPC and Novatek signed the Arctic LNG2 cooperation agreement.

On June 7, 2019, the president of CNPC, Wang Yilin, and Leonid Viktorovich Mikhelson, signed the CNODC & Novatek Share Purchase Agreement for Acquisition of Arctic LNG2 in St. Petersburg.

This agreement exerts essential impacts on the promotion of Arctic LNG2 project, and it is also the other cooperative project between CNPC and Novatek after the Yamal LNG project.

China’s largest shipping company Cosco Shipping Holdings and Russia shipping giant PAO Sovcomflot cooperate to start a new joint venture, Marine Arctic Transport LLC, shipping the LNG produced in Yamal Project to East Asia and North Europe. The new company is also invested by the Russia state-own shipping enterprise SCF Group and China Silk Road Fund and will own a fleet of 12 icebreaking LNGC at the beginning.

One major manager from China’s shipping industry said that China hoped to gain 4 million mt of LNG from Yamal every year steadily. China Shipping LNG Investment, one of Cosco Shipping Holdings’ subsidiaries, will run another nine similar icebreaking LNGC. Cosco Shipping Holdings may also seek the opportunity to invest Sovcomflo directly.

Leonid Mikhelson said that about 15 to 17 LNGC would be needed for the Arctic LNG2 Project. These vessels will be built in the Red Star Shipyard in Russia and will be operated by Marine Arctic Transport.

……

More detailed information, please click "Read more".